Punjab College of Technical Education, Ludhiana Course Module

SUBJECT: Microeconomics(BB103) CLASS: BBA Ist Semester COURSE INSTRUCTOR: Anshu Singh (email id: anshusingh@pcte.edu.in ) Chitwan Bhutani Rekhi (email id: chitwan@pcte.edu.in)

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 and price
situations. 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 a firm 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:-10 Marks (20) Tests:-10 Marks (2 Tests) (40) Assignments:-5 Marks (2 Assignments) (20) Lectures LECTURE NO 1 TOPIC Ice breaking Session Micro economics: 1)Meaning 2) Nature 2-3 3) Scope Basic Concepts of Economics: 1) Static and Dynamic Approaches 2) Equilibrium 3) Utility Basic Concepts of Economics: (contd) 4) Opportunity Cost 5) Marginal and Incremental Principles Micro economics and Business Assignment No. 1 ASSIGNMENTS TESTS CASE STUDY ACTIVITY

5 6

Theory of Demand: 1) Nature of Demand 2) Individual Demand 3) Market Demand Theory of Demand: (contd..) 4) Determinants demand 8 9 OPEN BOOK TEST Theory of Demand: (contd..) 1) Elasticity of Demand and its determinants 2) Measurement of Ed Theory of Demand: (contd..) 3) Demand as multivariate function Activity 1 Theory of Consumer Behaviour: 1) Utility Analysis a) Cardinal utility analysis b) Law of diminishing marginal utility c) Law of equi marginal utility. d) Consumer Equilibrium e) Ordinal utility analysis Theory of Consumer Behaviour: (contd..) 2) Indifference Analysis 19-21 Theory of Consumer Behaviour: (contd..) 22 23-24 3) Applications of IC Theory of production and costs: 1) concept of production Curve Case Study 1 of

10-12

13 14

15 16 17

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function Theory of production and costs: ( contd..) 25 2) production with one and two variable inputs Theory of production and costs: ( contd..) 26 3) optimal input Assignment 2 combination Theory of production and costs: ( contd..) 27 4) theory of cost in short run Theory of production and costs: ( contd..) 28-29 30 31 Revenue function Theory of firm and market organization: 32 33 34 35 1) Breakeven analysis 2) pricing under perfect competition 3) pricing under monopoly 4) price discrimination 5) pricing under monopolistic competition 6) selling cost 7) pricing under oligopoly: cournot model 8) kinked demand curve 5) theory of cost in long run Case study 2

36 37 38 39

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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 substitutes ________ Possession of a complementary good Income ______ ______ Expectation of price increase in future___________ Any Other, Please specify ________ ________

Availability ______ Variety ______

Design & physical appeal Multiple use ______ 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.

Assignment 3:

List down 5 different products that operate under monopolistic market. Also compare the prices with the substitutes of other companies. 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:
BANKING INDUSTRY TEXTILE INDUSTRY FMCG INDUSTRY IT INDUSTRY AUTOMOBILE INDUSTRY PHARMA INDUSTRY AVIATION INDUSTRY HOTEL INDUSTRY STEEL INDUSTRY INSURANCE INDUSTRY TELECOM INDUSTRY TOURISM INDUSTRY MEDIA AND ENTERTAINMENT INDUSTRY METALS AND MINING INDUSTRY

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 Can of coke (Rs25) Snickers bar (Rs 30) 1 Bottle milk (Rs15) Cookies (Rs 30)

Quantities

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 Can of coke (Rs25) Snickers bar (Rs 35) 1 Bottle milk (Rs15) Cookies (Rs 30) Quantities

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 Quantities Stage 2

(Snickers 30) Can of coke Snickers bar 1 Bottle milk Cookies

(Snickers cost 35)

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 Can of coke (Rs25) Snickers bar (Rs 30) 1 Bottle milk (Rs15) Cookies (Rs 30)

Quantities

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. Quantities Stage 1 Quantities Stage 5

Product

(Income is Rs 200)

(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: Percentage change in quantity demanded of Cross Price Elasticity of Demand = 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. A glossary will be maintained for all the relevant terminologies which will be discussed regularly after completing the chapters. Case Studies: x

The Demand for Big Macs Changes in demand and supply and coffee prices Break even analysis for Tata Motors Nano car Advertiser Competition in India

Suggested Redaings: T.R Jain: Microeconomics H.L Ahuja: Micoeconomics