Bb 103 micro economics chitwan


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course break up for micro economics BB103 semester 1

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Bb 103 micro economics chitwan

  1. 1. Punjab College of Technical Education, Ludhiana Course Instructor: Chitwan Kaur Subject: Micro Economics Subject Code: - BB 103 E-mail Id & Contact Number: (+919888906881) Total No. of Lectures: 40 Course Objective: The Course is helpful in understanding the microeconomic concepts. This is a module in basic microeconomic concepts and principles. It gives the student a fairly rigorous grounding in the essential tools of microeconomic analysis. The aims and objectives of the module, together with information on learning methods are given below. After the completion of the course, students would be able to:  Understand modern micro economic concepts, theories and methods.  Apply micro economic models and methods in order to analyse government policies. Grading criteria Max Marks: - 100 Internal Assessment: - 40 External Assessment:-60 Break up for Internals MSE: - 15 Marks (60) Presentation:-5 Marks (20) Tests:-10 Marks (2 Tests) (40) Assignments:-4 Marks (2 Assignments) (16) Case Study: - 3 Marks (2 Case Studies) (12) Viva: - 3 Marks (12) Break Up of the Course 1
  2. 2. LECTURE CASE ACTIVITY NO TOPIC ASSIGNMENTS TESTS STUDY 1 Ice breaking Session Micro economics: 1)Meaning 2) Nature 2-3 3) Scope Basic Concepts of Economics: 1) Static and Dynamic Approaches 2) Equilibrium 4 3) Utility Basic Concepts of Economics: (contd) 4) Opportunity Cost 5) Marginal and Incremental 5 Principles Micro economics and 6 Business Assignment No. 1 Theory of Demand: 1) Nature of Demand 2) Individual Demand 7 3) Market Demand Two Ways To Reduce The quantity of Smoking Case 8 Demanded Study 1 Theory of Demand: (contd..) 4) Determinants of demand 9 Theory of Demand: (contd..) 5) Elasticity of Demand and its determinants 10-12 6) Measurement of Ed Theory of Demand: (contd..) 7) Demand as 13 multivariate function 14 Activity 1 Theory of Consumer Behaviour: 1) Utility Analysis a) Cardinal utility 15 analysis b) Law of diminishing 16 marginal utility 2
  3. 3. c) Law of equi 17 marginal utility. d) Consumer Equilibrium e) Ordinal utility 18 analysis Theory of Consumer Behaviour: (contd..) 2) Indifference Curve Analysis 19-21 Theory of Consumer Behaviour: (contd..) 22 3) Applications of IC Theory of production and costs: 1) concept of production 23-24 function Theory of production and costs: ( contd..) 2) production with one 25 and two variable inputs Theory of production and costs: ( contd..) 3) optimal input 26 combination Theory of production and costs: ( contd..) 4) theory of cost in short 27 run Theory of production and costs: ( contd..) 5) theory of cost in long 28-29 run 30 Revenue function Theory of firm and market organization: 31 1) Breakeven analysis 2) pricing under perfect 32 competition 3) pricing under 33 monopoly 34 4) price discrimination 35 The DeBeers Diamond Case 3
  4. 4. Monopoly Study 2 5) pricing under monopolistic 36 competition Assignment 2 37 6) selling cost 7) pricing under oligopoly: cournot 38 model 39 8) kinked demand curve 40 9) price leadership Tests would be incorporated as per the schedule fixed in the coming days. Assignments: Students are supposed to submit the assignments on the given date and late submission will not be allowed. Copying an assignment will award you a zero and NO IMPROVEMENTS will be allowed for the same. Assignment 1: Each student will be allotted one product and you are supposed to get the response from 50 different people. What are the different factors they considered while purchasing that particular product? Price ______ Non availability of substitute’s ________ Availability ______ Possession of a complementary good ________ Variety ______ Income ______ Design ______ Expectation of price increase in future Multiple use ______ Any Other, Please specify ________ Trying new product _______ Habit Brand Loyalty ________ Summarize your research in one page as to what are the major three reasons of consideration for the purchase of that product. Elasticity? 4
  5. 5. Assignment 2: E- Assignment 1. List down 5 different products that operate under monopolistic competition. Also compare their prices with the substitutes of other companies. 2. List down 5 different products that operate under oligopoly form of market. Are the prices charged justified or not? What are the measures taken by the government to check the prices from being overcharged by the oligopolist? Presentation: The class would be divided into groups of 4 each. Each group will have 16 minutes for case presentation. Following are the presentation topics: 1. Small segment cars in Indian Market 2. Ten richest people in India 3. Cycle Market of Ludhiana And Comparison between Hero Cycles and Avon Cycles 4. Product differentiation in Maggi 5. Contribution of Tourism in GDP 6. Demand of Teenagers: Price based or Fashion Based 7. Greece Debt Crisis 8. Hindustan Lever Ltd: Product Differentiation 9. Future of Rs 1 Lakh cars and impact on 2 wheeler sector 10. Boutique Hospitals in India and impact on Indian economy 11. 3G Mobile Technology 12. Professionalism in Bollywood and impact on Indian economy 13. Comparison of India and China 14. Business leaders in India 15. Emerging communication technologies Case Study 5
  6. 6. Case Study 1 Two Ways To Reduce The quantity of Smoking Demanded Public policymakers often want to reduce the amount that people smoke. There are two ways that policy can attempt to achieve this goal. One way to reduce smoking is to shit the demand curve for cigarettes and other tobacco products. Public service announcements, mandatory health warnings on cigarette packages, and the prohibition of cigarette advertising on television are all policies aimed at reducing the quantity of cigarettes demanded at a given price. If possible these policies shift the demand curve for cigarettes to the left. Alternatively, policymakers can try to raise the price of cigarettes. If the government taxes the manufacturers of cigarettes, for example, cigarette companies pass much of this tax on to consumers in the form of higher prices. A higher price encourages the consumers to reduce the numbers of cigarettes they smoke. In this case, the reduced amount of smoking does not represent a shift in the demand curve. Instead, it represents a movement along the same demand curve on a point with a higher price and lower quantity. How much does the amount of smoking respond to changes in the price of cigarettes? Economists have attempted to answer this question by studying what happens when the tax on cigarette changes. They have found that 2% increase in price causes a 4% decrease in the quantity demanded. Teenagers are found to be especially sensitive to the price of cigarettes. 10% increase in price causes a 12% drop in teenage smoking. A related question is how the price of cigarettes affects the demand for other drugs such as marijuana. Opponents of cigarette taxes often argue that tobacco and marijuana are substitutes, so that high cigarette prices encourage marijuana. There is another view which says that lower cigarette prices are associated with greater use of marijuana. In other words, tobacco and marijuana appear to be complements rather than substitutes. 6
  7. 7. Y A Policy to discourage smoking D1 shifts the demand curve to the left D2 P A Shift in the demand curve Y Axis: price of cigarettes per pack X No. of cigarettes smoked per day Case Study 2 The DeBeers Diamond Monopoly A classic example of a monopoly that arise from the ownership of key source is DeBeers, the South African diamond company. DeBeers controls about 80% of the world’s production of diamonds. Although the firm’s share is not 100%, it is large enough to exert substantial influence over market price of diamonds. How much market power does DeBeers have? The answer depends in part on whether there are close substitutes for its product. If people view emeralds, rubies and sapphires as good substitutes for diamonds, then DeBeers has relatively little market power. In this case, any attempt by DeBeers to raise the price of diamonds would cause people to switch to other gemstones. But if people view these other stones as very different from diamonds, then DeBeers can exert substantial influence over the price of its product. 7
  8. 8. DeBeers pays for large amount of advertising. At first, this decision might seem surprising. If a monopoly is the sole seller of its product, why does it need to advertise? One goal of DeBeers ads is to differentiate diamonds and other stones in the minds of the consumers. When their slogan tells you that “diamonds are forever,” you are meant to think that same is not true of emeralds, rubies and sapphires. If the ads are successful, consumers feel that diamonds are unique, rather than as one among many gemstones and this perception will give DeBeers greater market power. Activity 1 Stage 1 You have Rs 200 to spend. You can buy any of the products in any combination, but you must make sure you spend all of your Rs 200. You may not spend more than Rs 200. Complete the table below. Product Quantities Can of coke (Rs25) Snickers bar (Rs 30) 1 Bottle milk (Rs15) Cookies (Rs 30) Stage 2 Today is a new day and you have consumed all the food you bought above yesterday - you have no food at all at the moment. 8
  9. 9. A global shortage of peanuts has pushed the price of a Snickers bar up to Rs 35. All other product prices remain the same. You still have Rs 200 to spend (which you must spend all of). Complete the table below with your new shopping list. Product Quantities Can of coke (Rs25) Snickers bar (Rs 35) 1 Bottle milk (Rs15) Cookies (Rs 30) Stage 3 - Calculating Market Demand Add together the requests from each individual in your group for each product in stages 1 and 2. This will give you the Market Demand for each product. Complete the table below. Quantities - Stage 1 Quantities - Stage 2 Product (Snickers 30) (Snickers cost 35) Can of coke Snickers bar 1 Bottle milk Cookies You can now see the Market Demand for Snickers bars at each of the prices in stages 1 and 2. Draw the demand curve for Snickers bars below. Draw a straight line through the two co- ordinates on the graph. What sort of relationship exists between price and quantity demanded? Stage 4 - Introducing Price Elasticity of Demand You can now see responsiveness of quantity demanded to a change in price for Snickers bars. Calculate the Price Elasticity of Demand using the formula: Percentage change in quantity demanded Price Elasticity of Demand = Percentage change in price 9
  10. 10. Hint: To calculate a percentage change, divide the change in the value of a variable by the initial value, then multiply by 100. For example, if demand for cans of coke rises from 7 to 10, then the change in value is 3. Dividing 3 by 7 (the initial value) gives 0.43. Multiplying by 100 gives 43%. Stage 5 It is now Day 3 and the peanut crisis has eased. Snickers bars now cost Rs 30 again. You have consumed all the food you bought on Day 2. The generosity of the government has provided all students with a grant and they now have to spend Rs 300. Complete the tables below with your new shopping list, ensuring you spend all of your Rs 300 Product Quantities Can of coke (Rs25) Snickers bar (Rs 30) 1 Bottle milk (Rs15) Cookies (Rs 30) Stage 6 - Introducing Income Elasticity of Demand Complete the table below to show market demand for Snickers bars in stages 1 and 5. Make sure you add up the demand from individuals in your group. This shows the difference in market demand at different income levels. Quantities - Stage 1 Quantities - Stage 5 Product (Income is Rs 200) (Income is Rs 300) Can of coke Snickers bar Pint of milk Mars bar You can now see the Market Demand for Snickers bars at the different income levels in stages 1 and 5. Draw the demand curve for Snickers bars below. 10
  11. 11. You can now see responsiveness of quantity demanded to a change in income for Snickers bars. Calculate the Income Elasticity of Demand using the formula: Percentage change in quantity demanded Income Elasticity of Demand = Percentage change in income Stage 7 - Introducing Cross Price Elasticity of Demand Take another look at the table above under 'Stage 3 - Calculating Market Demand'. What happened to the quantities demanded of the other goods when the price of Snickers bars increased? The responsiveness of quantity demanded of one product to a price change in a related product is known as the Cross Price Elasticity of Demand and can be calculated using the following formula: Percentage change in quantity demanded of Cross Price Elasticity of Demand = x Percentage change in price of y Calculate the Cross Price Elasticity of Demand for cans of coke, bottles of milk and cookies, and plot the shift in the demand curve on the templates below. Activity 2 Economic Concepts Covered in the Lesson Plan: • Law of Diminishing Marginal Utility • Opportunity Cost • Utility a. On the paper, students will rate the benefit of consuming a piece of candy based on a scale of 1-10. In economics terminology, this benefit gained from consuming a good or service is called utility. 1 represents the lowest utility and 10 the highest utility. Those in the audience will also conduct their own “virtual” rating as you imagine your level of utility of consuming the piece of candy. b. The scribe will collect the ratings from the five volunteers. 11
  12. 12. c. Distribute one piece of candy to each of the five volunteers and give the following instructions: d. Consume the piece of candy and once the volunteer has finished level of utility, based on a scale of 1-10, is recorded. e. Distribute the second piece of candy, have the volunteers rate their utility, ask the scribe to record the ratings. The audience will also rate the second piece. Explain the difference between utility and marginal utility. f. Distribute the third piece of candy following the same procedure as above. g. What do the students notice about the data? h. Why do you suppose the marginal utility ratings declined? i. At what point did the marginal utility of consuming begin to decline? j. Is it possible that this same decline in marginal utility would occur for other items that we consume? How about a t-shirt? What do you predict would happen to the marginal utility ratings for the second, third and fourth for the exact same t-shirt? k. Can you think of an example when the Law of Diminishing Marginal Utility would not hold true, where an individual’s satisfaction or benefit would continue to increase? Activity 3 Select any one economic news and analyze its impact on the Indian economy. Ask the students one day before to get the news in the class. Activity 4 Word Finder Terms to be discussed: Interest rates, GDP, National income, Per capita income, Foreign exchange, how economy works Books: Koutsoyiannis: Modern Microeconomics H.L Ahuja: Micoeconomics Question Bank 12
  13. 13. Short questions: 1. Explain the term micro economics 2. Explain the opportunity cost 3. What do mean by the term demand 4. Explain marginal utility 5. What is arc elasticity of demand 6. Mention the various assumptions of perfect competition. 7. Give assumptions of indifference curve 8. Explain the term individual demand curve 9. Why demand curve slopes downward 10. Explain the break even analysis 11. rWhat is the scope of microeconomics 12. What is the meaning of price elasticity of demand 13. Show price effect with the help of indifference curve. 14. What are the main assumptions of utility analysis? 15. Distinguish between fixed costs and variable costs. 16. Show the relationship between average revenue and marginal revenue. 17. What ate the features of perfect competition. 18. Define selling costs 19. What do you understand by elasticity of demand 20. What is market price. 21. Define the term income effect 22. Explain the term implicit and explicit costs 23. What do you mean by returns to scale. 24. What is kinky demand curve 25. Distinguish between ordinal no. and cardinal no. 26. What do mean by average fixed cost? 27. What do mean by equi marginal principle 28. Define equilibrium 29. How do tates and preferences of consumer affect the demand of a commodity? 30. What do you mean by production function? 31. What is indifference map 32. Define price effect 33. What are the features of an oligopoly market 34. What are the features of monopolistic competition? 35. What is the relation between total utility and marginal utility 36. What is indifference curve 37. What is the importance of elasticity of demand 38. Why short run cost curve is U shaped 39. Under what conditions can a monopoly firm attain equilibrium 40. Explain oligopoly Long questions: 1. Discuss the uses of microeconomics 2. Explain the properties of indifference curve. 3. Explain the condition of perfect competition. How is the price determined under the conditions of perfect competition 13
  14. 14. 4. Explain the law of equi marginal utility 5. What is demand curve? Why does the demand curve slope down to the right? Are there any exceptions to it? 6. What is elasticity of demand? How is it measured? 7. Examine the importance of microeconomics in business studies? 8. Define price elasticity of demand. What are the factors on which price elasticity of demand depend upon? 9. Explain how consumer attains equilibrium, with the help of indifference curve. 10. Why long run average cost curve is called as planning curve? 11. What is break even analysis? What are its assumptions? 12. Explain the scope of microeconomics 13. Explain the law of diminishing marginal utility. Discuss its importance. 14. What is monopolistic competition? How is price determined under it? 15. Explain the various methods of measuring price elasticity 16. When price discrimination is possible profitable and beneficial to society? 17. Discuss law of diminishing returns. Does it apply to agriculture 18. What do you mean by demand? Give factrs which determine demand of a commodity? 19. What is law of diminishing marginal returns? 20. Discuss how price and output is determined under monopoly market? 21. Explain price and output determination under cournot model. 22. Explain the features of monopolistic competition. How is it different from oligopolistic? 23. What is opportunity cost? Give some examples of opportunity cost. How these costs are relevant for managerial decisions. 24. Distinguish between microeconomics and macro economics 25. Distinguish between arc elasticity and point elasticity of demand 26. Write a note on traditional theory of cost. 27. sWrite a note on price leadership model. 14