Core Course 5: Intermediate Microeconomics-I

This course offers a rigorous exploration of consumer and producer behavior, forming the micro-foundations for all subsequent economic analysis.

Course Content Details

1. Consumer Theory: Preferences, Budget Constraints, and Choice

This unit provides a formal treatment of consumer decision-making. We move beyond basic utility to analyze consumer preferences axiomatically. The interaction between what a consumer wants (preferences) and what they can afford (budget constraint) is modeled to determine their optimal choice, using graphical and mathematical optimization techniques.

Key Topics:

  • Axioms of Rational Choice
  • Utility Functions and Indifference Curves
  • The Marginal Rate of Substitution
  • Optimal Choice and the Condition for Utility Maximization
  • Corner Solutions and Kinked Indifference Curves

2. Demand Functions and Comparative Statics

Building on consumer choice, this unit analyzes how the optimal bundle changes when prices or income change. This is known as comparative statics. We will derive individual and market demand functions and decompose the effect of a price change into income and substitution effects using both the Slutsky and Hicks approaches. Concepts like revealed preference and consumer surplus are also explored in greater depth.

Key Topics:

  • Derivation of Individual and Market Demand Curves
  • Income and Substitution Effects (Slutsky and Hicks)
  • Compensated (Hicksian) and Uncompensated (Marshallian) Demand
  • The Slutsky Equation
  • Revealed Preference (WARP and SARP)

3. Producer Theory: Technology, Cost Minimization, and Profit Maximization

This unit provides a formal analysis of the firm's behavior. We model the firm's technology using production functions and isoquants. The core of this section is solving the firm's two key problems: first, how to produce a given level of output at the lowest possible cost (cost minimization), and second, how much to produce to achieve the highest possible profit (profit maximization).

Key Topics:

  • Production Functions and Isoquants
  • Marginal Rate of Technical Substitution (MRTS)
  • Returns to Scale
  • The Cost Minimization Problem and Conditional Factor Demands
  • The Profit Maximization Problem and the Profit Function

4. Supply Functions and Market Equilibrium

This unit uses the results from producer theory to derive the firm's supply function. We analyze how a firm's output decision changes as the market price changes. By aggregating the supply of all firms in an industry, we derive the market supply curve. Finally, we combine market demand and market supply to re-examine the concept of market equilibrium and its stability.

Key Topics:

  • Derivation of the Short-Run and Long-Run Supply Curves for a Firm
  • Industry Supply in the Short and Long Run
  • Partial Equilibrium Analysis
  • Stability of Equilibrium

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