MICRO ECONOMICS F:\pm5_inr\inner\3275_inner.pmd\22-11-2022\SKChauhan According to Common Minimum Syllabus of B. Com. Semester I of University of Lucknow effective from the Academic Session 2021-22

SAHITYA BHAWAN PUBLICATIONS : AGRA MICRO ECONOMICS Dr. J.P. Mishra M.Sc. (Math), M.A. (Economics), D.Phil. Professor Economics, Principal (Retd.) Govt. P.G. College, Uttar Pradesh 2022

Code : 3275 ISBN : 978-93-91259-14-3 Price : ` 395/- Printed & Published by SAHITYA BHAWAN PUBLICATIONS HOSPITAL ROAD, AGRA-282 003 Tel. 0562-4030565 www.sahityabhawanpublications.com Email : [email protected] Follow us on : /sahitya.bhawan.publications /sahitya_bhawan /company/sahitya-bhawan-publications © Publishers No part of this publication can be reproduced or copied in any form or by any means without permission in writing of the Publishers. Breach of this condition is liable for legal action. Note : This publication is being sold on the condition and understanding that the information, comments, and views it contains are merely for guidance and reference and must not be taken as having the authority of or being binding in any way on, the author, editors, publishers and sellers, who do not owe any responsibility whatsoever for any loss, damage, or distress to any person, whether or not a purchaser of this publication, on account of any action taken or not taken on the basis of this publication. Despite all the care taken, errors or omissions may have crept inadvertently into this publication. All disputes are subject of the jurisdiction of competent courts in Agra. B. Com. Semester I gsrq egRoiw.kZ izdk'ku r foŸkh; ys[kkadu ? MkW- ,l- ,e- 'kqDy r FINANCIAL ACCOUNTING ? Dr. S.M. Shukla r PRACTICE MANUAL OF FINANCIAL ACCOUNTING ? Dr. S.M. Shukla r O;kolkf;d laxBu ? MkW- in~ekdj vLFkkuk r BUSINESS ORGANISATION ? Dr. Padmakar Asthana & Dr. I.M. Sahai r O;f"V vFkZ'kkL= ? MkW- ts- lh- iUr ,oa MkW- ts- ih- feJk r MICRO ECONOMICS ? Dr. J.P. Mishra r eqÊk] cSa•dx ,oa fofue; ? izks- (MkW-) fcey tk;loky ,oa MkW- ts- ih- feJk r CURRENCY, BANKING AND EXCHANGE ? Prof. (Dr.) Bimal Jaishwal, Ms. Richa Banerjee and Dr. Anupam Vidyarthi r izcU/k ds flºkUr ? MkW- ,l- lh- lDlSuk r ESSENTIALS OF MANAGEMENT ? Dr. S.C. Saksena

PREFACE The book has been published strictly according to Common Minimum Syllabus of B.Com. Semester I of Lucknow University, Lucknow. With the decay of communism and re-enthroning of the market economy, it has become even more important to understand the function of the market as a co-ordinating system. Joan Robinson described economic theory as a ‘‘box of tools’’. For a proper handling of our tools, we must learn how they function. This book fulfils these objectives. I have tried to present a clear and accurate picture of modern micro economics. While doing this, relevant historical account has also been added so that the principles of modern economics are understood in their proper perspective. Though the book has been presented in the traditional format, the analysis covers all important recent developments. In preparing the book I have received valuable support and inspiration from Shri K. L. Bansal. I express my gratitude to him and thank him for its expeditious publication. I am solely responsible for whatever deficiencies that are in the book. —Author

NEW COMMON MINIMUM SYLLABUS B.Com. Semester I PAPER III : MICRO ECONOMICS Course Outcome : After studying all materials and resources presented in the course, the student will be able to : ·l Explain the role of scarcity, specialization, opportunity cost and cost/benefit analysis in economic decision-making. ·l Identify the determinants of supply and demand; demonstrate the impact of shifts in both market supply and demand curves on equilibrium price and output. ·l Summarize the law of diminishing marginal utility; describe the process of utility maximization. ·l Calculate supply and demand elasticities, identify the determinants of price elasticity of demand and supply, and demonstrate the relationship between elasticity and total revenue. ·l Describe the production function and the Law of Diminishing Marginal Productivity; calculate and graph short-run and long-run costs of production. ·l Relate to real world business scenario through study of various market forms. ·l Study the factors affecting distribution of income through an analysis of various factor payments. ·l Gain in depth insight and equip them to analyze the real economic situations more effectively with the help of practical problems using elementary mathematics. Unit-I : Definition and concepts of Economics : Wealth, Welfare, Scarcity and Growth Oriented definitions, Concept of Scarcity, Optimum Utilization Equilibrium and Various Forms of Equilibrium. Nature and Scope of Economics, Micro and Macro Economics. Inductive and Deductive methods of Economics. Unit-II : Consumer Behaviour and Utility Analysis; Cardinal Approach : Law of Diminishing Marginal Utility, Law of Equi-Marginal Utility, Consumer's equilibrium and Consumer's Surplus. Demand Analysis : Types, Determinants and change in demand, Law of Demand and its exception. Elasticity of Demand : its types and measurements. Ordinal Approach : Indifference curve Analysis, price, income and substitution effects. Unit-III : Producer's Behaviour : Production and Factors of Production. Law of Production : Law of Variable Proportions and Return to Scale. Isoquant : Meaning, Assumptions and Properties. Producer's Equilibrium through Isoquants. Cost Curves Analysis : short run and long run cost. Law of Supply and its Elasticity. Market : Revenue Analysis, Concept and Classification of Market. Equilibrium and Price Determination of Firm and industry under Perfect competition, Monopolistic competition and Monopoly, Price discrimination in monopoly. Unit-IV : Distribution : Factor Pricing, Theory of Marginal Productivity. Rent : Ricardian Theory, Modern Theory, Quasi Rent, Wages : Subsistence Theory of Wages, Wage Fund Theory, Residual Claimant Theory and Marginal Productivity Theory. Interest: Gross and Net Interest, Classical Theory of Interest, Loanable Funds Theory, Liquidity Preference Theory. Profit : Accounting and Economic Profit. Dynamic Theory of Profit : Risk-bearing Theory, Uncertainty Bearing Theory and Innovation Theory.

CONTENTS 1. DEFINITION AND CONCEPTS OF ECONOMICS . . . . . . . . . . . . . . . . . . . . . . . 1 2. BASIC PROBLEMS OF AN ECONOMY AND WORKING OF PRICE MECHANISM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3. EQUILIBRIUM AND OPTIMUM UTILISATION, VARIOUS FORMS OF EQUILIBRIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4. NATURE AND SCOPE OF ECONOMICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5. RELATION OF ECONOMICS WITH OTHER SUBJECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 6. MICRO AND MACRO ECONOMICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 7. METHODS OF ECONOMIC ANALYSIS (DEDUCTIVE AND INDUCTIVE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 8. THEORY OF DEMAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 9. ELASTICITY OF DEMAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 10. CONCEPT AND TYPES OF UTILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 11. THEORY OF CONSUMER BEHAVIOUR : CARDINAL APPROACH (LAW OF DIMINISHING MARGINAL UTILITY, LAW OF EQUI-MARGINAL UTILITY) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 12. CONSUMER’S SURPLUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 13. THEORY OF CONSUMER BEHAVIOUR : THE INDIFFERENCE CURVE ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 14. PRODUCTION AND FACTORS OF PRODUCTION . . . . . . . . . . . . . . . . . . . . 208 15. LAW OF PRODUCTION (PRODUCTION FUNCTION WITH ONE VARIABLE : LAW OF VARIABLE PROPORTIONS AND LAW OF RETURNS TO SCALE) . . . . . . . . . . . . . . . . . . . 219 16. LAW OF PRODUCTION (PRODUCTION FUNCTION WITH TWO VARIABLE INPUTS) (ISOQUANTS AND PRODUCER’S EQUILIBRIUM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 K:\APPL-32\3275\2022\Cont. chp\Ist\SKChauhan_22-11-2022 All chapters borrow from Code A079 and change serial no. of chapters 3275

17. COST ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 18. MARKET (CONCEPT, DEFINITIONS, CHARACTERISTICS AND CLASSIFICATION) . . . . 273 19. REVENUE ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288 20. THEORY OF SUPPLY (LAW OF SUPPLY AND ITS ELASTICITY). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 21. EQUILIBRIUM OF FIRM AND INDUSTRY UNDER PERFECT COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 22. PRICE AND OUTPUT DETERMINATION UNDER PERFECT COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 23. MONOPOLY PRICING AND PRICE DISCRIMINATION . . . . . . . . . . . . . . 350 24. THE THEORY OF IMPERFECT COMPETITION (MONOPOLISTIC COMPETITION). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382 25. PRICING UNDER OLIGOPOLY AND THEORY OF GAMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 26. THEORY OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418 27. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430 28. WAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446 29. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 30. PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493 (ii)