Punjab College of Technical Education, Ludhiana
Course Module
SUBJECT: Microeconomics(BB103)
CLASS: BBA Ist Semester
COURSE INSTRUCTOR: Anshu Singh (email id: knowanshu@gmail.com )
Microeconomics
Microeconomics (is a branch of economics that studies how the individual parts of the economy, the household and the firms, make decisions to allocate limited resources, typically in markets where goods or services are being bought and sold. Microeconomics examines how these decisions and behaviors affect the supply and demand for goods and services, which determines prices, and how prices, in turn, determine the supply and demand of goods and services..
Course Objectives
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.
Classroom Policies
Cell Phones!! Not to be used under any circumstances during the lecture
Assignments!!All assignments have to be submitted on time and no excuses for late submissions will be entertained. The class representative has to collect the same and submit it on the scheduled date.
Punctuality - I am afirm believer of this policy. Once I have entered the class and the attendance is complete, no attendance will be given to late comers. However they may attend the class without attendance if they wish to.
Active participation is required in the class. Students are expected to ask question in a disciplined manner by raising their hands or standing up at their respective places.
Copying of assignments is not allowed. Zero marks will be awarded if the same is discovered with respect to any assignment. Your hard work will pay you in the long run and will go a long way in developing your creative thinking and empowering your minds.
Grading and performance evaluation
External assessment – 60 marks
Internal assessment – 40 marks
Weight age of Internal Assessment (40 marks):
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)
Class participation: - 3 Marks (12)
Lectures
LECTURE NO TOPIC ASSIGNMENTS TESTS CASE STUDY ACTIVITY
1 Ice breaking Session
2-3 Micro economics: 1)Meaning
2) Nature
3) Scope
4 Basic Concepts of Economics:
1) Static and Dynamic Approaches
2) Equilibrium
3) Utility
5 Basic Concepts of Economics: (contd)
4) Opportunity Cost
5) Marginal and Incremental Principles
6 Micro economics and Business Assignment No. 1
7 Theory of Demand:
1) Nature of Demand
2) Individual Demand
3) Market Demand
8 Theory of Demand: (contd..)
4) Determinants of demand
9 Case Study 1
10-12 Theory of Demand: (contd..)
1) Elasticity of Demand and its determinants
2) Measurement of Ed
13 Theory of Demand: (contd..)
3) Demand as multivariate function
14 Activity 1
15 Theory of Consumer Behaviour:
1) Utility Analysis
a) Cardinal utility analysis
16 b) Law of diminishing marginal utility
17 c) Law of equi marginal utility.
18 d) Consumer Equilibrium
e) Ordinal utility analysis
19-21 Theory of Consumer Behaviour: (contd..)
2) Indifference Curve Analysis
22 Theory of Consumer Behaviour: (contd..)
3) Applications of IC
23-24 Theory of production and costs:
1) concept of production function
25 Theory of production and costs:
( contd..)
2) production with one
and two variable inputs
26 Theory of production and costs:
( contd..)
3) optimal input combination Assignment 2
27 Theory of production and costs:
( contd..)
4) theory of cost in short run
28-29 Theory of production and costs:
( contd..)
5) theory of cost in long run
30 Case study 2
31 Revenue function
32 Theory of firm and market organization:
1) Breakeven analysis
33 2) pricing under perfect
competition
34 3) pricing under monopoly
35 4) price discrimination
36 5) pricing under monopolistic
competition
37 6) selling cost
38 7) pricing under oligopoly: cournot model
39 8) kinked demand curve
40 9) price leadership
Assignments
During the semester the students will have to undertake two assignments. One of them will be individual e – assignment and other will be a group assignment.
Assignment 1:
This will be an individual e- assignment. 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 & physical appeal ______ Expectation of price increase in future___________
Multiple use ______ Any Other, Please specify ________
Trying new product _______
Taste preference and liking ________
Brand Loyalty ________
Summarize your research in one page as to what are the major three reasons of consideration for the purchase of that product.
Assignment 2:
This will be a group assignment where students will be divided in groups of four. With respect to their family business they are suppose to identify different types of costs like fixed and variable. They are suppose to describe these costs briefly and identify the major cost of that particular business. Also discuss how some costs can be controlled.
Presentation
The class would be divided into groups of 4 each. Each group will be assigned presentation topics and are required to make presentation to the entire class. Students who leave before the completion of the presentation of the entire class will not be awarded any attendance. Following are the presentation topics:
Public sector vs. private sector banks
Mall vs. retail stores
Importance of monsoon in India
Role of RBI
Population control – India Vs. China
LIC and GIC
Basic for some, luxury for others
Major ports in India
FDI and its importance
Handicraft industry in India
GAP 1985 and success till date
SIDBI
Cell phones – requirement based demand or trend based
Nano vs Hero Honda
Too many FMCG products around us
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.
Y
P
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.
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.
Activities
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.
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.
Product Quantities - Stage 1
(Snickers 30) Quantities - Stage 2
(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:
Price Elasticity of Demand = Percentage change in quantity demanded
Percentage change in price
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.
Product Quantities - Stage 1
(Income is Rs 200) Quantities - Stage 5
(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.
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:
Income Elasticity of Demand = Percentage change in quantity demanded
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:
Cross Price Elasticity of Demand = Percentage change in quantity demanded of 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 4
Word Finder. Discussion on relevant terms like GDP, Poverty line, per capita income, inflation, interest rates, foreign exchange, monetary policy etc.
Suggested Redaings:
Koutsoyiannis: Modern Microeconomics
H.L Ahuja: Micoeconomics
