MEX 1503 Microeconomics

Course Code MEX 1503
Course Title Microeconomics
Number of Credits 5
Year Number 1
Medium of Instruction Sinhala and English

Microeconomics is concerned with studying the economic behaviour of the individual entities that compose an economy. Whether an organization is profit making or non for profit, microeconomics provide direction to use its limited resources effectively and efficiently. This course has been designed to introduce microeconomic principles and to teach how these principles can be used to make effective decisions in various situations.

The objective of the course is to provide students with thorough understanding of the concepts and principles of microeconomic analysis. The course is also aimed at teaching students the major implications of those concepts in business, industry and government.

At the end of the course, students should be able to,

  1. Understand how concepts in economics are used to deal with the problem of scarcity.
  2. Understand how demand and supply forces work together in determining the prices for products in the markets.
  3. Understand the role and the behavior of different individual entities such as firms, government and the consumers for the well-functioning of markets.

Differentiate different market structures in terms of their characteristics, cost and revenue structures and efficiency.



Main Topics Sub Topics
1. Introduction 1.1  Nature and Scope of Economics

1.2  The Economic Problem

1.3  The Science of Economic Analysis

1.4  Microeconomics vs. Macroeconomics

1.5  Normative vs. Positive Economics

1.6 Scarcity, Choice ,Opportunity Cost and Production Possibility Curve

2. Demand, Supply, Equilibrium and Government Intervention


2.1  Theory of Demand and Supply

2.2  Equilibrium Price and Quantity

2.3  Changes in the Equilibrium

2.4  Consumer’s and Producer’s Surplus

2.5  Elasticity of Demand

2.6  Price Elasticity of Supply

2.7 Government Intervention in the Market (Price Ceiling/ Price Floor/ Tax)

3. The Theory of Consumer Behaviour 3.1   Introduction

3.2   Cardinal Utility (Marginal Utility) Approach

3.2.1   Utility Schedules and Graph

3.2.2   The Law of Diminishing Marginal  Utility

3.2.3     Consumer Optimum for One Product

3.2.4    Derivation of Individual Demand Curve

3.2.5    Equilibrium for Two Products

3.2.6    Limitations of Marginal Utility Approach

3.3  Indifference Curve Analysis                                3.3.1    Indifference Curve

3.3.2    Slope of the Indifference Curve              3.3.3   The Budget Constraint                            3.3.4   Consumer Equilibrium

3.3.5   Income Consumption Curve and Engle Curve

3.3.6   Price Consumption Curve and Derivation of    Individual Consumer Demand Curve

4. Theory of Production 4.1  Introduction

4.2  Production with One Variable Input

4.2.1   Total, Average and Marginal product

4.2.2   The Stages of Production

4.2.3  The Law of Diminishing Returns               4.2.4       The Optimal use of variable input

4.3 Production with Two Variable Inputs

4.3.1    Long Run Production Function

4.3.2    Isoquant

4.3.3    The Law of Diminishing MRTS                               4.3.4 Isoquants for Perfect Substitutes and     Complementary Inputs

4.3.5           Iso-Cost lines                                4.3.6    Long Run Firm Equilibrium                 4.3.7     Production Expansion Path                  4.3.8    Factor Substitution

4.3.9    Returns to Scale

5. Theory of Cost and Profit   Maximization 5.1       Measuring Cost of Production

5.2       Short Run Cost

5. 3       Relationship between Production and Cost Curves

5.4       Relationship between Cost Curves

5.5       Long Run Costs

5.6       Economies and Diseconomies of Scale

5.7       Profit Maximization

5.7.1     Profit Maximization using Total Approach

5.7.2     Profit Maximization using Marginal Approach

6. Market Structures 6.1       Perfect Competition                                         6.1.1             Characteristics

6.1.2    Short‑Run Equilibrium of the Firm

6.1.3      Closing Down Point of a Firm

6.1.4    Short‑Run Supply Curve of a Firm      6.1.5            Short‑Run Equilibrium of the Industry

6.1.6    Long-Run Equilibrium of the Firm

6.1.7    Long-Run Equilibrium of the Industry

6.2       Monopoly                                                        6.2.1            Characteristics

6.2.2     Causes for a monopoly

6.2.3    Demand and Revenue

6.2.4    Costs

6.2.5    Equilibrium of a Monopolist

6.2.6    Price Discrimination

6.3       Monopolistic Competition

6.3.1    Characteristics of Monopolistic      Competition

6.3.2 Equilibrium  in the Short Run

6.3.3             Equilibrium in the Long Run

6.4         Oligopoly

6.4.1             Characteristics

6.4.2 Models of  the Oligopoly                    6.4.3             Kinked Demand Curve                                    6.4.4            Cournot’s Model                                  6.4.5    Cartels Model or Collusive Oligopoly  6.4.6    Price Leadership

Mode of Study Seminar/ Self Study
Evaluation Final Exam 100%

1. Slomon, J., Economics, Seventh Edition, Prentice Hall, 2000
2. Koutsoyiannis, A., Modern Microeconomics, Second Edition, ELBS, 1994