This document provides an introduction to microeconomics concepts including market structures, laws of demand and supply, types of goods, production possibility frontier, budget constraints, opportunity cost, and market equilibrium. It discusses the key characteristics and examples of different market structures such as monopoly, oligopoly, and perfect competition. It also defines important economic concepts such as consumer and producer surplus, and how public goods meet market demand through subsidies, government production, and public-private partnerships.

1. Date: 21.06.18
Introduction to Economics 2
Micro Economics

2. The Market

3. Types of Market Structure
✤ One player
✤ Huge barriers to
entry
✤ Supplier
determines price
✤ Eg- Petroleum
•Many Competing
firms
•Identical products
•No barrier to entry
•No disadvantage
from existing firms
•Good Price
information to
customers
✤ few producers
✤ similar or
homogenous
products.
✤ Collusion is possible
to determine prices
✤ Some Barrier to
entry
✤ Eg- oil producing
countries
Ideal
Monopoly Oligopoly
Eg- commercial airline
tickets

4. Law of Demand
✤ The law of demand is a
microeconomic concept that
states that when the price of a
product decreases, consumer
demand for this particular
product increases, provided
that all other factors that affect
consumer demand remain
equal (ceteris paribus).

5. Law of Supply
✤ The Law of Supply states that
the quantity of a good or
service that firms are willing to
produce, increases with
increase in Price of the
product

6. The Goods

7. Types of Goods
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8. Public and Private Goods

9. Public and Merit Goods

10. Producer and Buyer
✤ Choice
✤ Budget constraint
✤ Opportunity cost

11. Production
Possibility Frontier
✤ A production possibilities
frontier, or PPF, defines the
set of possible
combinations of goods and
services a society can
produce given the
resources available.
✤ Choices outside the PPF
are unattainable, and
choices inside the PPF are
wasteful.
PRODUCER

12. PPF and Efficiency
✤ All choices along a PPF display productive efficiency—it is
impossible to use society’s resources to produce more of one good
without decreasing production of the other good.
✤ The specific choice along a PPF that reflects the mix of goods society
most desires is the choice with allocative efficiency.
PRODUCER

13. Budget Constraint
✤ The Budget constraint is the boundary
of an Opportunity set- all possible
combinations that a person can afford,
given the prices of goods and the
individual’s income
✤ Utility is the satisfaction, usefulness or
value one obtains from consuming
goods and services
✤ The law of diminishing Marginal
Utility states that as a person receives
more of one good, the additional
utility from each additional unit
declines
translates to increasing marginal
costs for the producer
BUYER

14. Choice and Opportunity Cost
✤ A benefit, profit, or value of something that must be given up to
acquire or achieve something else. Since every resource (land, money,
time, etc.) can be put to alternative uses, every action, choice, or
decision has an associated opportunity cost.
✤ Everything comes at a cost. Apart from costs associated with
production, there is also the cost of alternative
opportunities that have been given up to produce/buy a
certain product or service

15. Market+Buyer+ Seller

16. Market
Equilibrium
✤ When the supply and demand
curves intersect, the market is
in equilibrium. This is where
the quantity demanded and
quantity supplied are equal.
The corresponding price is the
equilibrium price or market-
clearing price, the quantity is
the equilibrium quantity.

17. Market Surplus
✤ Consumer surplus is an economic
measure of consumer benefit, which
is calculated by analyzing the
difference between what consumers
are willing and able to pay for a
good or service relative to its
market price, or what they actually
do spend on the good or service
✤ Producer surplus is defined as the
difference between the amount the
producer is willing to supply goods
for and the actual amount received
by him when he makes the trade.

19. How to meet market demand for
public goods?
✤ Subsidies
✤ Govt monopoly Production
✤ PPP