6. Fundamental Concepts of Microeconomics

1. Objectives and Methods of Microeconomics2. The Consumer3. The Firm4. The Market5. Basic Issues in Welfare Economics

6.1 Objectives and Methods of Microeconomics

Art Work 1: David Dalla Venezia, No. 269, Oil on Canvas, 2000

Conflict resolution and Coordination

Art Work 2: Theater Bonn, Germany, FRIDA KAHLO, 2003. Photo: Thilo Beu.

6.2 The Consumer

Fig. 6.1 The Individual Demand Curve

Increasing Income

Fig. 6.2 Comparative Static Analysis of Demand as Income Increases

6.3 The Firm

Fig. 6.3 Equilibrium Output Decision of a Perfectly Competitive Firm

Equilibrium Supply

Fig. 6.4 Equilibrium Supply for Alternative Prices

Supply Curve

Fig. 6.5 The Supply Curve of the Firm

Comparative Statics of Supply

Fig. 6.6 Comparative Static Analysis of the Individual Supply Curve

6.4 The Market

Fig. 6.7 Deriving the Market Demand Curveby Horizontal Aggregation of the Individual Demand Curves

Market Supply

Fig. 6.8 Deriving the Market Supply Curveby Horizontal Aggregation of Individual Supply Curves

Market Equilibrium

Fig. 6.9 Market Equilibrium

Comparative Statics of Equilibrium

Fig. 6.10 Comparative Static Analysis of the Market Equilibrium

6.5 Basic Issues in Welfare Economics

Fig. 6.11 Socially Optimal and Perfectly Competitive Level of Production

Inter-firm Allocation

Fig. 6.12 Cost-effective inter-firm Allocation

Inter-consumer Allocation

Fig. 6.13 “Benefit-effective” Inter-consumer Allocation

Market Failure

Fig. 6.14 Market Failure due to Negative Externalities