Microeconomics in business 2600-DSMdz1MIB

Basic issues in economics. The market mechanism. Elasticity of demand and supply. Utility theory. Theory of consumer demand. Producer theory. Theory of costs and profits. Perfect competition. A complete monopoly. Monopolistic competition. The market of production factors.
1. Basic issues in economics
The subject and goal of microeconomics. Positive and normative economics. Economic methods (observation of economic life, induction, deduction, review). Economic laws and a model of an economy. Resources and flows. The goal of economy (the notion, types, and characteristics of human needs, hierarchy of human needs, means of satisfying human needs – goods, services, and states). Production, distribution, and consumption. Economy structure by agent. Economic choices and properties of production factors. The problem of rarity and the opportunity cost notion. The long and short-term production possibilities frontier. The production possibilities curve. Households and producers decisions. A simple model of income circulation. Economist’s tools and ways of presenting economic phenomena.

2. The market mechanism
The market and its types. Demand and its determinants. Potential and effective demand. Demand in micro- and macroeconomic terms. The law of demand. The multi-factor demand function. Supply and its determinants. The law of supply. The multi-factor supply function. Market equilibrium in statistical terms. Market equilibrium allowing for the time factor. Market effects of supply and demand variations. Long-term market equilibrium.

3. Elasticity of demand and supply
The notion of function elasticity. Elasticity of the demand function. Price elasticity of demand. Mixed elasticity of demand. Income elasticity of demand. Price elasticity of supply. Measuring the intensity of demand’s reaction to changes in the determinants.
4. Utility theory
The rational and sovereign consumer. Rational and irrational behaviour. Multi-factor and one-factor utility functions. Types of utility (total and marginal utility). The law of marginal diminishing utility. Cardinal utility theory. Theory of indifference curves (ordinal utility theory). Consumer equilibrium in terms of indifference curves theory. Consumer surplus. Demand and changes in consumer income. The income-consumption curve (ICC). Engle curves for normal luxurious goods, normal necessary goods, and inferior goods. Households’ expenditure and consumption in Poland in the years 1990-2021. Consumer demand and changes in goods prices. The price-consumption curve (PCC).

5. Theory of consumer demand
Substitution effect and income effect of a price change – according to Hicks and Slutsky. Measuring real income changes – compensatory and equivalent income changes. Untypical market behaviour of consumers – Leibenstein effects (bandwagon and snob effects), ostentatious consumption. Applications of the consumer choice theory (basics of the leisure/work choice, labour supply curve, substitution and income effects of a price change).
6. Producer theory
Producer as a market agent. The homogenous production function. Cobb-Douglas production function. Total product, average product and marginal product. The law of diminishing income. Interrelationships among TP, MP and AP – stages of production. Production returns to scale. Firms’ choice of outlays. Cost minimization for a given outlay. Production isoquant – changes along and between isoquants. Derivation of isoquants from TP curves. Isoquant and production methods. Isoquants and returns to scale. Substitution among production factors. Marginal rate of technical substitution (MRTS). A declining MRTS. Isocosts. Optimum output. The output expansion path. Changes in factor prices.

7. Theory of costs and profits
Basic production costs – hidden and overt costs. Short-term production costs. Short-term average costs. Short-term and long-term marginal cost. Long-term costs. Growing and declining returns to scale. The curve of the long-term average cost. Interrelations among the curves of total, average, and marginal costs. Interrelations among the production function and the cost function in the short-term. Profit and its types. The relationship between the level of economic result and total receipts and total cost.

8. Perfect competition
Market models – an introduction. Assumptions of a perfect competition model. The short-term equilibrium of a perfect competitor. The short-term supply of an enterprise and a branch of industry. The long-term equilibrium of a perfect competitor. The long-term supply curve for a branch in a perfect competition model.

9. A complete monopoly)
Assumptions about a complete monopoly. Marginal revenue and price under a monopoly. Short-term equilibrium in a monopoly model. The long-term monopoly equilibrium. Short-term supply of a monopoly. A natural monopoly. Price discrimination in a market with a complete monopoly (price discrimination of the first, second and third degrees). A comparison of perfect competition and a complete monopoly.

10. Monopolistic competition
Assumptions about a monopolistic competition model (a polypoly). Marginal income and price under a monopoly. The demand curve in a monopolistic competition environment. Short-term equilibrium of a monopolistic competitor. Enterprise’s long-term equilibrium in a market with monopolistic competition. Non-price competition.

11. The market of production factors
Demand for factors under perfect and imperfect competition. Supply of factors under perfect and imperfect competition. Level of factor utilisation and its price in various market structures. Economic rent. The labour market (demand for labour and labour supply, a perfectly competitive labour market, causes of wage variations, monopsony, labour market monopoly, bilateral monopoly in the labour market, long-term labour market equilibrium).