In Ethiopia, a big challenge to accessing financial services is getting loans, especially for micro, small, and medium enterprises (MSMEs). These businesses account for about 70% of jobs in urban areas of the country. However, they face challenges when trying to get loans from formal financial institutions such as banks due to burdensome requirements such as high interest rates, long processing times, heavy collateral requirements, and limited bank branch locations. As a result, many MSMEs resort to informal sources of finance like friends, family, or saving clubs (Equb, Amharic: እቁብ), which are often unreliable and expensive. The CBE’s wholesale credit facilities are targeting wholesale customers which own business organization with the exception of some consumer loans targeting specific segment such as NGO employees, Diaspora, and condominium house owners. As a means of closing the gap, the Branch and Retail banking Division has initiated an idea of introducing Buy Now, Pay Later (BNPL) otherwise known as point of sale financing. Buy Now, Pay Later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay at a future date. The service will allow buyers to obtain what they want irrespective of their temporary financial constraints and enable them to pay back their debt in an extended period of time via a technology-assisted system. Therefore, it will provide modern services by transforming traditional credit services. The main objective of the study is, therefore, to assess the feasibility of Buy Now Pay Later (BNPL) which is expected to have a high contribution for financial inclusion problems. Key Issues Based on the international and domestic banks’ experiences and the data analysis, the following key issues are drawn. • BNPL Financing is a type of short-term financing that allows consumers to make purchases and pay for them at a future date. It is becoming an increasingly popular payment option; • BNPL has fully digital operating landscape that enables superior customer experience and business efficiency. Thus, it is expected to capture a significant portion of the market with strong growth prospect; • Dashen Bank is the only bank that provides BNPL financing so far. However, as a substitute product Cooperative Bank of Oromia is providing Michu financing. • Fin-tech and telecommunication companies that work in partnership with domestic Banks are potential competitors to BNPL business that provide and facilitate digitized credit facility; • The domestic experience revealed that: o The maximum spending limit on Dube Ale is currently set at Birr 700,000 and is determined at branches; o Payments can only be made using the app, and withdrawals are not allowed; o Customers are charged a subscription, guarantee and convenience fees; The maximum loan duration is 12 months; o Interest Ranges from 2% to 2.5% on monthly basis; o The customer should repay the previous credit first to get another credit and the credit

1. Bright College
School of Business and Economics
BA degree in Management
Course Title: Microeconomics
Course Code:
Instructor Name : Etebark H.
Target group: Management and Accounting
Departments
Total contact hour: 135
1

2. Chapter – One
Introduction to Economics

3. 1.1. Definition: What is Economics all about for
you?
 Economics is defined as the study of how societies
choose to use their scarce productive resources that
have alternative uses, to produce valuable
commodities and distribute them among its different
groups for consumption to satisfy the unlimited
human wants.
 There are four types of economic resources these
are: Land, Labor, capital and Entrepreneurship.
3

4. 4
1. Land: includes all the natural resources on or in it.
The return to the owners of land is rent.
2. Labor: is a broad term for all the physical and mental talents
of skilled, semi-skilled and unskilled human resources
(excluding entrepreneurs).
The return paid to labor is referred to as wages and salaries.
3. Capital (capital goods or investment goods): include all
manufactured /man made/ goods used for further
production, that is, all tools, machinery, equipment, factory,
storage, transportation, etc..
The process of producing and purchasing capital goods is
known as investment.

5. 5
4. Entrepreneurship: an entrepreneur is a person who:-
 Takes the initiative in combining the other factors of production (labor,
capital, and land), which are otherwise passive, to make available goods
and services.
 Makes basic business-policy decisions (non-routine decisions).
 Is an innovator of new products, new productive techniques/processes
and new forms of business organization?
 Is a risk bearer/taker with a chance of profit or loss? The return paid to
an entrepreneur is Profit.

6. 1.1.2 Levels of Economics
Branches of Economics:-
 1. Microeconomics - deals with the economic behavior of
individual decision-making units such as consumers,
resource owners, business firms and individual markets,
industries, organizations etc.
For Example, The price of a specific product, The number of
workers employed by a single firm, the revenue or
expenditures of a particular firm or government entity, etc.
 Macroeconomics- examines the economy as a whole or its
basic sub-divisions or aggregates such as the government,
household and business sector.
An aggregate is a collection of specific economic units
treated as if they were one unit.
For Example the aggregate level of output, national income, and
aggregate employment, the general price level, national
consumption, national saving and investment, money supply,
exchange rate, etc
6

7. 7
 In general there are two methods of economic
reasoning which are used by economists in making
economic policies.
1. Inductive Method of Reasoning:
 Induction distils or creates principles from facts.
 It involves three major steps.
 First facts are collected.
 Then they are arranged systematically and analyzed
repeatedly.
 Finally, general principles or theories are derived from the
conclusion and then policies are formulated based on the
principles.
Cont’d

8. 8
• Induction moves from facts to theory (from
the specific to the general or from simple to
complex).
Facts Principles /theories/ Policies
2. Deductive Method of Reasoning:
• This method of reasoning goes in a reverse
direction from Inductive method of
reasoning.
• Deductive method from general
(principles/theories) to particular (facts) it.
Cont’d

9. 1. What to produce? - The Problem of Resources
Allocation
2. How to produce? - The problem of choice of
technique of production.
3. For whom to produce? - The Problem of
distribution of goods and services.
9
1.2.1. Basic Economic Problems or Questions

10. Chapter -Two
UTILITY ANALYSIS

11. Utility is the Quality of a good to satisfy a want.
Thus we can say that wants satisfying power of a commodity is
called utility.

12. Features of Utility
 Utility is Subjective: It is subjective because it deals with
the mental satisfaction of a man.
 Utility is Relative: Utility of a commodity never remains
the same.
 Utility is Not Essentially Useful: A commodity having
utility need not be useful. Liquor and cigarette are not
useful, but to satisfy the want of an addict then they gave
utility for him.
 Utility is Independent Of Morality: Utility has nothing to
do with morality.

13. CONCEPTS OF UTILITY
 Initial Utility: The utility derived from the first unit of a
commodity is called initial utility. It is always positive.
 Total Utility: It is the sum total of utility derived from the
consumption of all units of a commodity.
 Marginal Utility: Marginal means change. It refers to the
additional utility obtained due to the consumption of an
additional unit of a commodity.
 Marginal utility can be (i) positive (ii) zero (iii) negative.

14. Approaches to Utility Analysis
 There are two polarized approaches to the
measure and comparison of utility. They
are:
(1) Cardinalist Approach, and
(2) Ordinalist Approach.
 Even if we mention the two approaches,
the cardinal measure of utility has no use
in the today’s modernized economics.

15. Basic Assumptions of utility Theory
a) Rationality of Consumers: the consumer tries to
maximize his utility subject to the undergoing constraints.
b) Measurability of Utility: The utility of each commodity
is measurable.
c) Constant Marginal Utility of Money: This assumption is
essential if the monetary unit is used as the measure of
utility.
d) Diminishing Marginal Utility: The law states that as one
goes on consuming more units of a commodity, the utility
of the commodity will increase for some time and then
diminishes.
e) Utility is Additive: The total utility (TU) a consumer
obtains from consuming batches of goods is a function of
the number of goods and services consumed

16. Chapter -Three
Theory of Demand and Supply

17.  Demand:- is a schedule or a relationship
between the various amounts of a commodity
that consumers are willing and able to buy at
each price in a series of alternative prices over a
given period of time, ceteris paribus.
 Quantity Demanded: - is a fixed amount of a
commodity that consumers are willing and able
to buy at a specific price at a given time, ceteris
paribus.
17

18. 18
2.1.3 Individual Vs Market demand
 In general, demand can be analyzed from two sides: from an
individual’s point of view (individual demand) and/ form an
entire market point of view (market demand).
 Let us take a hypothetical example and see how the theory of
demand works by using schedules/ tables, graphs,
mathematical equations/ functions.
Price Quantity
(Kg per month)
( Birr Per Kg Demanded
0 18
1 16
2 14
3 12
4 10
5 8
6 6
7 4
8 2
9 0 Q
P

19. 19
The Law of Demand
 Law of demand states that the quantity demanded
of a commodity and its price are inversely related,
other things remaining constant.
 That is, if the income of the consumer, prices of the
related goods, and tastes and preferences of the
consumer etc remain unchanged, the consumer’s
demand for the good will move opposite to the
movement in the price of the good.
 i.e., "If the price of the good increases, the quantity
demanded decreases and if price of the good
decreases, its quantity demanded increases."

20. 2.1.4 Determinant Factors of Demand
1. Income of the customer
2. The prices of other related goods.
3. The prices of other related goods.
4. Consumer expectations about future prices and
incomes.
5. 5. The number of consumers in the market.
20

21. Demand
 A change in demand is a change in one or more of the
determinants of demand (but not in its own price) will shift
the entire demand curve to the right or to the left. i.e., a change
in demand refers to the shift of the entire demand curve due to
a change in any of the determinant factors of demand other
than its own price.
 A shift of the demand curve to the right indicates an increase
in demand. This means that the consumer(s) are willing and
able to buy more of the product at each possible price than
before.
 A shift of the demand curve to the left indicates a decrease in
demand. This means that the consumer(s) are willing and able
to buy less of the product at each possible price than before.
21

22. 22
 Change in Quantity demanded means:- the
movement from one point to another on the same
demand curve but not a shift in the demand curve.
 The movement from one price-quantity combination
(pair) to another on the same demand schedule but not a
change in the demand schedule itself.

23. 2.1.6 The Concept of Elasticity of Demand
 In general, Elasticity of demand is nothing but the
responsiveness or sensitivity of quantity demanded of a
commodity to a change in any one of the determinant factors of
demand..
 Elasticity measure gives us both the magnitude and the direction
of change in demand with respect to a 1 % change in the
determinant factor of demand under consideration.
Where Q is quantity demanded and D is determinant factor of demand
under consideration (own price, price of other goods, income etc).
changeinD
Percentage
changeinQ
Percentage
Ed 
23

24. Price elasticity of demand
 The most common elasticity measurement is that of price
elasticity of demand. It measures how much consumers
respond in their buying decisions to a change in the price of
a given commodity.
 Price elasticity of demand, therefore, is the
responsiveness or sensitivity of quantity demanded of a
commodity to a change in the own price of a commodity.
 Hence, Price elasticity of demand (Ed) is a measure used
in economics to show the responsiveness, or sensitivity, of
the quantity demanded of a good or service to a change in
its own price. More precisely, it gives the percentage change
in quantity demanded in response to a one percent change
in price. Price elasticity of demand is always negative,
although we tend to ignore the sign (take the absolute value
for comparison or analytical purpose) due to the law of
demand.
24

25. 25
The Price Elasticity Formula
 The general formula for calculating the coefficient of
price elasticity of demand for a given commodity is
given by:
1
1
%
%
Q
P
P
Q





26. 26
In general elasticity coefficients can be categorized on to five types
depending on the magnitude of the elasticity coefficients.
1. Relatively Elastic Demand: demand is said to be relatively
elastic if a 1 % change in price results in a more than 1 % change
in quantity demanded. In this case, % change in P < % change in
Qd. Thus, Ed>1.
Example, if a 3% decline in price leads to a 6% increase in Qd,
then
Ed= 6% = 2 (greater than one), i.e., demand is elastic.
3%
2. Relatively Inelastic Demand: demand is said to be relatively
inelastic if a 1 % change in price results in a less than 1 % change
in Qd. In this case, % change in P > % change in Qd. Thus, Ed<1.
Example if a 4% decline in price leads to a 2% increase in Qd, then
Ed= 2 % = 0.5 (less than one), i.e., demand is
inelastic. 4%

27. 27
 3. Unitary elastic demand: demand is said to be
unitary elastic if a 1 % change in price results in
exactly 1 % change in Qd. In this case, % change in
P = % change in Qd. Thus, Ed=1.
 Example, if a 3% decline in price leads to a 3%
increase in Qd, then
Ed= 3% / 3% = 1 (equal to one), i.e., demand is
unitary elastic.
 4. Perfectly Elastic demand: is an extreme
situation of an elastic demand where a very small
(infinitesimal) price reduction would cause buyers
to increase their purchase dramatically, and vice
versa. In this case Ed equals to infinity and the
demand curve is a horizontal line parallel to the X-
axis.

28. 28
5. Perfectly inelastic demand:- is another extreme situation
of an inelastic demand where any change in price results in
no change in quantity demanded. Hence, whatsoever the %
change in P is, % change in Qd is equal to zero.
Thus, Ed=0 and the demand curve is a vertical line parallel to
the Y-axis. The demand for insulin by a person with an
acute diabetic is inelastic. What other examples can you
site?
 For example, suppose p1=10, p2=40 q1=30 and q2=30 for a
person taking insulin everyday (taking his/her monthly
consumption), then
0
30
10
30
0
30
10
10
40
30
30











Q
P
inP
inQ
Ed

29. Determinant factors of the Price Elasticity of Demand
There are four major factors that determine elasticity of demand with
respect to a change in price. These factors include
1. The availability of other substitute goods/ services
2. Nature of the commodity (Luxury Vs Necessity)
3. Product price relative to buyer’s income (proportion of income)
4. Time.
29

30. Theory of Supply
 Supply represents the sellers/ producers side of the
market. The objective of sellers/ producers is to
maximize profit.
 Supply is a schedule/ relationship between the various
amounts of a commodity that producers are willing
and able to offer (to make available) for sell at each
price in a serious of possible alternative prices during a
given period of time, ceteris paribus.
 Quantity Supplied: - is a fixed amount of a
commodity that producers are willing and able to sell
at a specific price at a given time, ceteris paribus.
30

31. The Law of Supply
 Law of supply states that the amount supplied of a
commodity and its price are directly related, other
things remaining constant.
 That is, if input prices, technology, price of other
product related goods etc., remain unchanged, the
quantity supplied of the good will move directly to the
movement in the price of the good. i.e., "If the price of
the good increases, the quantity supplied increases
and vice versa."
31

32. Determinant Factors of Supply
 In addition to the own price of a commodity there are
about six other basic determinants of supply are:
1. Resource (input) Prices
3. The technology of production
4. Taxes and Subsidies
5. Price of other products
6. Price expectations
7. The number of sellers in the market
32

33. Determinants of the price elasticity of
supply
1. Cost of production
2. Nature of the product
3. Time
33

34. Market Equilibrium
 At the market equilibrium, quantity demanded
and quantity supplied are equal.
 When supply and demand are in balance a market is
said to have reached an equilibrium resulting in a
state of balance or rest.
 Thus, the market clearing price is called equilibrium
price and the corresponding quantity is called
equilibrium quantity.
34

35.  Graphically, to find the equilibrium price and quantity,
we have to draw the demand and supply curves on the
same set of axis. the equilibrium point is nothing but
the intersection point between the demand and the
supply curves; point E.
35
Price
600
500 * * S
400 * *
E
300 *
200 * *
100 * * D
0
3000 6000 9000 12000 18000 Q'ty

36.  Hence, the equilibrium point is unique and stable over a
given period of time. However, if either demand or supply, or
both, change though time there will be a new equilibrium.
 Mathematical Analysis of Equilibrium
 Given the following Demand and Supply functions,
find equilibrium price and quantity.
 Qd = 250 – 20p
 Qs = 100 + 10p
 Solution: From the above discussion, we know that at
equilibrium Qd = Qs
 Hence, 250 - 20p = 100 + 10p
250 - 100 = 10p + 20p
150 = 30p
 P* = 150/30 = 5 birr
36

37.  Now, substituting the value of P in either the demand
or supply equation we can easily get the equilibrium
quantity as follows.
 Qd = 250 – 20p or Qs = 100 + 10p
Q* = 250 – 20(5) Q* = 100 + 10 (5)
Q* = 150 units Q* = 150 units
 Therefore, the equilibrium price is 5 Birr and the
equilibrium quantity is 150 units.
37

38. Effect of a Change in Demand and/ or
Supply on the Equilibrium condition
 Case 1: A change in Demand, Supply remaining
constant
38
a) Increase in demand
Price
S
P2 E2
P1 E1
D2
D1
Q'ty
Q1 Q2 Q
Supply remaining constant, due to
an increase in demand, when
demand shifts from D1 to D2, we
have a new equilibrium point, point
E1. Therefore, an increase in
demand, supply held constant, leads
to a rise in both equilibrium price
(from P1 to P2) and quantity (from
Q1 to Q2).

39. Case 2: Change in Supply, Demand
remaining constant
39
a) Increase in Supply
Price
S1
S2
P1 E1
P2 E2
D1
Q1 Q2 Q'ty
Demand remaining constant, an
increase in supply, when supply shifts
from S1 to S2, we have a new
equilibrium point, point E2. Therefore,
an increase in supply, demand held
constant, leads to a fall in equilibrium
price (from P1 to P2) and a rise in
equilibrium quantity (from Q1 to Q2).

40. Chapter –Four
Production, Costs and Revenue

41. In economics, Production is the process by which
inputs or factors of production are combined,
transformed, and turned in to outputs.
41

42. Fixed inputs vs. Variable inputs
 Fixed inputs are those factors of production the
quantity of which can't be changed over a short
period when output changes.
 Variable inputs are inputs the quantity of which
readily changes in response to the desired change in
output in a short time. These inputs change (vary) in
quantity to effect change in output. Example: Labor
and material.
42

43. The Production Function
 In microeconomics, a production function is a
function that specifies the output of a firm for all
combinations of inputs. This function is an assumed
technological relationship, based on the current state
of engineering knowledge; it does not represent the
result of economic choices, but rather is an externally
given entity that influences economic decision-
making. The relationship of output to inputs is non-
monetary; that is, a production function relates
physical inputs to physical outputs, and prices and
costs are not reflected in the function.
43

44. Average product
 Average product (AP) is calculated by dividing total
product by the number of units of each specific input
that produced it. In other words it is output per unit of
each input. For instance, in our example above, average
product of labor (i.e. column 4) is computed as:
 Average product of labour= Total product ,
Total unit of labour
 or APL =
44

45. Marginal product (MP) of a variable input
 Marginal product (MP) of a variable input is the
additional output that can be produced by adding the
variable input by one more unit. In our wheat example,
the marginal product of labor (i.e. column 5 ) is
computed as:
 Marginal Product = Change in total product,
Change in amount of labour used
or MP = ∆TP
∆L
45

46. Mathematical Relation
 Under perfect competition, since MR=P, marginal
revenue product is equal to marginal physical product
(extra unit produced as a result of a new employment)
multiplied by price.
 MRP= MP*PRICE
 Hence, the marginal revenue product of labor MRPL is
the increase in revenue per unit increase in the
variable input = ∆TR/∆L
 MR = ∆TR/∆Q
 MPL = ∆Q/∆L
 MR x MPL = (∆TR/∆Q) x (∆Q/∆L) = ∆TR/∆L
46

47. Cont’d
 As noted above, the firm will continue to add units of
labor until the MRPL = w
 Mathematically until
 MRPL = w
 The theory states that workers will be hired up to the
point where the Marginal Revenue Product is equal
to the wage rate by a profit maximizing firm, because
it is not efficient for a firm to pay its workers more
than it will earn in profits from their labor.
47

48. Cont’d
 Hence, we have the following relationship:
 MRPL = w
 MR (MPL) = w
 MR = w/MPL
 MC = ∆VC/∆Q= W∆L/∆Q=∆TC/∆Q= W/MPL
 MR = MC which is the profit maximizing rule.
48

49. What are costs?
According to the law of supply, firms are
willing to produce and sell a greater
quantity of a good when the price of the
good is high.
This results in a supply curve that slopes
upward.

50. What are costs?
The firm’s objective
The economic goal of the firm is to maximise
profits.

51. Total revenue, total cost,
and profit
Total revenue is the amount a firm
receives for the sale of its output.
Total cost is the amount a firm pays to
buy the inputs into production.
Profit is the firm’s total revenue minus its
total cost.
Profit = total revenue − total cost

52. Fixed and variable costs
Fixed costs are those costs that do not
vary with the quantity of output
produced.
Variable costs are those costs that do
vary with the quantity of output
produced.

53. Fixed and variable costs
Total costs:
Total fixed costs (TFC)
Total variable costs (TVC)
Total costs (TC)
TC = TFC + TVC

54. Average costs
• Average costs can be determined by
dividing the firm’s costs by the
quantity of output it produces.
The average cost is the cost of each
typical unit of product.

55. Average costs
•Average costs
Average fixed costs (AFC)
Average variable costs (AVC)
Average total costs (ATC)
•ATC = AFC + AVC

56. Average costs
A
F
C
F
C
Q
 
F
i
x
e
d
c
o
s
t
Q
u
a
n
t
i
t
y
A
V
C
V
C
Q
 
V
a
r
i
a
b
l
e
c
o
s
t
Q
u
a
n
t
i
t
y
A
T
C
T
C
Q
 
T
o
t
a
l
c
o
s
t
Q
u
a
n
t
i
t
y

57. Marginal cost
• Marginal cost (MC) measures the
increase in total cost that arises from
an extra unit of production.
Marginal cost helps answer the following
question:
How much does it cost to produce an additional
unit of output?

58. Marginal cost
M
C
T
C
Q
 
(
c
h
a
n
g
e
i
n
t
o
t
a
l
c
o
s
t
)
(
c
h
a
n
g
e
i
n
q
u
a
n
t
i
t
y
)



59. THE
END