University Economics Lecture Notes
Compiled for Academic Use
1. Introduction to Economics
Economics is the study of how societies allocate scarce resources to meet unlimited wants.
Microeconomics focuses on individual decision-makers: households, firms, markets.
Macroeconomics studies the aggregate economy: GDP, inflation, unemployment, growth.
Key economic questions: What to produce? How to produce? For whom to produce?
2. Demand and Supply, Elasticity
Law of Demand: As price falls, quantity demanded rises (ceteris paribus).
Law of Supply: As price rises, quantity supplied increases.
Equilibrium occurs where demand = supply.
Elasticity: A measure of responsiveness.
Price Elasticity of Demand (PED) = %∆Qd / %∆P.
If PED > 1 → Elastic demand; PED < 1 → Inelastic demand.
3. Consumer Behavior and Utility Theory
Utility refers to the satisfaction derived from consumption of goods and services.
Law of Diminishing Marginal Utility: Additional satisfaction decreases as more units are consumed.
Consumers maximize utility when MUx/Px = MUy/Py (equimarginal principle).
Indifference curve analysis shows consumer preferences: convex curves representing bundles of
goods.
4. Production, Costs, and Firms
Production function: Relationship between inputs and output.
Short run: At least one factor is fixed. Long run: All factors are variable.
Law of Diminishing Returns: As more of one input is added, marginal product eventually falls.
Costs: Fixed, variable, total, average, and marginal costs.
Profit maximization occurs where MC = MR (marginal cost equals marginal revenue).
5. Market Structures
Perfect Competition: Many firms, identical products, no barriers to entry, price takers.
Monopoly: One firm dominates, high barriers to entry, price maker.
Monopolistic Competition: Many firms, differentiated products, some price-setting power.
Oligopoly: Few firms dominate market, may collude or compete (Game Theory).
6. National Income and GDP
Gross Domestic Product (GDP): Market value of all final goods and services produced
domestically.
Methods of measurement: Output method, income method, expenditure method.
Nominal GDP vs. Real GDP (adjusted for inflation).
Limitations: Excludes informal economy, ignores inequality, environmental damage.
7. Inflation, Unemployment, and Business Cycles
Inflation: General rise in price levels, measured by CPI and WPI.
Causes: Demand-pull, cost-push, structural.
Unemployment types: frictional, structural, cyclical, seasonal.
Business Cycles: Phases → expansion, peak, recession, trough, recovery.
8. Fiscal Policy and Monetary Policy
Fiscal Policy: Government spending and taxation to influence aggregate demand.
Expansionary fiscal policy increases spending/lower taxes to boost growth.
Monetary Policy: Central bank actions to control money supply and interest rates.
Tools: Open market operations, reserve requirements, discount rate.
Inflation targeting is a common modern strategy.
9. International Trade and Exchange Rates
Comparative Advantage: Countries specialize where they have lowest opportunity cost.
Trade benefits both partners through efficiency and specialization.
Exchange rates: Value of one currency relative to another.
Fixed vs. Floating exchange rate systems.
Global institutions: WTO, IMF, World Bank.
References
Mankiw, N. Gregory – Principles of Economics.
Samuelson, P.A. & Nordhaus, W.D. – Economics.
Krugman, P. & Wells, R. – Macroeconomics.
Stiglitz, J.E. – Economics of the Public Sector.
Todaro, M.P. – Economic Development.
