The analysis of consumer behavior and individual choice is central to microeconomics.  Such analysis is the foundation of economic reasoning and it gives economics much of its power. In this section, we will learn about the intricacies of consumer behavior. This will help us better to understand the consumer optimization problem, nature of the demand curve in economics, particularly why the demand curve slopes downward and has an inverse relationship to price. The list of topics that will be cover under this section is

§  Expenditure minimization and Hicksian demand function, properties of Hicksian demand function, expenditure function ad its properties

§  Duality between Marshallian demand function and Hicksian demand function

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§  Practical on Eview by using HIES data

In this section, we move from the demand curve to the supply curve as we take up the task of understanding the theory of production.   We shall see that the analysis of supply and production is more complicated than the analysis of demand.  This is because in the supply process, people first offer the factors of production that they control to the market.  These factors of production are then transformed by firms into goods that consumers want. There are a number of very important ideas that we want to come to grips with in this section: the difference between short run and long run costs, marginal cost and the law of diminishing returns, economies of scale and the shapes of various cost curves, and economic versus accounting profits.  The topics cover under this section is

§  Examples of production function

§  Return to scale and homotheticity

§  Cost minimization

§  Comparative static analysis

§  Conditional demand and its properties

§  Cost function and its properties

§  Short run cost, fixed cost, short run variable cost, short run total cost

§  Average cost, average fixed cost, average variable cost, average total cost

§  Marginal cost, relationship between average cost and marginal cost

§  Long run cost

§  Total revenue, marginal revenue, average revenue

§  Profit maximizing level of input

§  Static analysis on factor demand

§  Properties of demand function

§  Supply function, profit function and  its properties

§  Profit maximization with single output and two inputs

§  Substitution effect, output effect and cross price effect

o    Duality in production theory

The goal of this module is to understand how industries are structured and why different industries exhibit different kinds of market conduct and performance. Industry structure refers to how many firms are in an industry, whether the firms are big or small, what the firms’ cost structures look like, and how market share is divided among the firms. The four major types of industry structure include perfect competition as well as three forms of imperfect competition — monopoly, monopolistic competition, and oligopoly.

§  Profit maximization problem

§  Supply function and inverse supply function

§  Industry supply function

§  Market equilibrium

§  Welfare analysis; consumer surplus, producer surplus

§  Effect of taxed and subsidies on perfect competition welfare and dead weight loss

§  Examples from context of Pakistan, Agricultural commodity markets (e.g., wheat, rice, vegetables in mandi system).

§  Monopolist profit maximization problem

§  Profit maximizing level of output and elasticity of demand

§  Welfare analysis under monopoly and comparison with perfect competition

§  Price discrimination; first degree, second degree and third degree

§  Examples (Pakistan Context): Monopoly – Pakistan Railways, WAPDA/Regional DISCOs. Monopolistic Competition – Telecom sector (Jazz, Telenor, Zong, Ufone).

Stability of the system

Comparative statics

§  Bertrand equilibrium

§  Quantity leadership

§  Price leadership

§  Examples (Pakistan Context): Cement industry, automobile sector (Suzuki, Toyota, Honda), banking sector.

This module focuses on the pricing of factors of production and their role in determining resource allocation in markets. It covers how firms maximize profits and derive demand for inputs based on production needs. The module explores comparative statics to analyze changes in input demand and examines the responsiveness of input use to variations in input prices. It also studies marginal productivity and factors influencing the distribution of factor income. Additionally, the concept of monopsony in input markets is discussed to understand its impact on wages and employment.

§  Comparative static of input demand

§  Responsiveness of input demand to change in input prices

§  Marginal productivity analysis and determinants of factor share

§  Monopsony in input market

This module introduces decision-making under uncertainty, focusing on how individuals evaluate risky outcomes. It covers lotteries, the concept of expected utility, and the conditions ensuring the uniqueness of the expected utility function. The module also examines risk aversion and its implications for economic behavior.

§  Expected Utility

§  Uniqueness of expected utility function

§  Risk Aversion