Supply and Demand and Study Guide
ECO11 (ver8)
MICROECONOMICS 1
STUDY GUIDE
ECO11
MICROECONOMICS 1
STUDY GUIDE
© University of South Australia 2009
This work was printed from camera-ready copy submitted by the Unit Coordinator. The Flexible Learning Centre of the University of South Australia was not involved in its production.
CONTENTS
Contents 3
Introduction 5
An introduction to the economic perspective 13
Demand and supply 17
Elasticity 21
Market applications 25
The behaviour of firms and costs 31
Perfect competition 37
Monopoly 43
Monopolistic competition 47
Oligopoly 51
Economic performance, market failure and government intervention 55
Appendix: Guide to working successfully through the unit 63
INTRODUCTION
Welcome to Microeconomics 1. In this unit of study, we intend to introduce you to the particular principles, language, techniques and insights associated with an economic perspective of the modern world. The following quotation by John Galbraith underlines the ubiquitous relevance of economics: “To have a working understanding of economics is to understand the largest part of life. We pass our years, most of us, contemplating the relationship between the money we earn and the money we need, our thoughts suspended, as it were, between the two. Economics is about what we earn and what we get for it. So an understanding of economics is an understanding of life’s principal preoccupation”. as well as its role in keeping us abreast of policy issues of relevance: “There’s another thing it can do for you. The newspaper headlines, when they escape from sex and the Middle East, are largely concerned with the economic decisions of governments. If people make no effort to understand these decisions, do not have an intelligent position and do not make that position known, they obviously surrender all power to those who do understand, pretend to understand or believe they understand. And
MICROECONOMICS 1
STUDY GUIDE
ECO11
MICROECONOMICS 1
STUDY GUIDE
© University of South Australia 2009
This work was printed from camera-ready copy submitted by the Unit Coordinator. The Flexible Learning Centre of the University of South Australia was not involved in its production.
CONTENTS
Contents 3
Introduction 5
An introduction to the economic perspective 13
Demand and supply 17
Elasticity 21
Market applications 25
The behaviour of firms and costs 31
Perfect competition 37
Monopoly 43
Monopolistic competition 47
Oligopoly 51
Economic performance, market failure and government intervention 55
Appendix: Guide to working successfully through the unit 63
INTRODUCTION
Welcome to Microeconomics 1. In this unit of study, we intend to introduce you to the particular principles, language, techniques and insights associated with an economic perspective of the modern world. The following quotation by John Galbraith underlines the ubiquitous relevance of economics: “To have a working understanding of economics is to understand the largest part of life. We pass our years, most of us, contemplating the relationship between the money we earn and the money we need, our thoughts suspended, as it were, between the two. Economics is about what we earn and what we get for it. So an understanding of economics is an understanding of life’s principal preoccupation”. as well as its role in keeping us abreast of policy issues of relevance: “There’s another thing it can do for you. The newspaper headlines, when they escape from sex and the Middle East, are largely concerned with the economic decisions of governments. If people make no effort to understand these decisions, do not have an intelligent position and do not make that position known, they obviously surrender all power to those who do understand, pretend to understand or believe they understand. And