EKN 214: Microeconomics 214 Course Notes

Microeconomics explains how households, firms, and governments make decisions when resources are scarce. In EKN 214 (Microeconomics 214), the focus is on building a rigorous toolkit: demand and supply, consumer choice, production and cost, market structures, welfare, and applied policy analysis. These course notes are written to be useful for South African university coursework and exam preparation—especially where lecturers expect diagram competence, interpretation of marginal concepts, and the ability to reason from first principles.

Section 1: Foundations of Microeconomics and Consumer Choice (with Exam-Ready Diagrams)

Microeconomics begins with the basic idea that decisions are made under constraints. In EKN 214, you are expected to understand both (1) the logic of choice—marginal trade-offs and incentives—and (2) the mathematics and graphs that represent those incentives.

Core Microeconomic Concepts You Must Master

Scarcity, opportunity cost, and incentives

• Scarcity means not everything can be produced or consumed.
• Opportunity cost is the value of the best alternative you give up.
• Incentives shape behavior: when prices or costs change, individuals and firms respond.

In exam questions, you often see incentive changes disguised as:

• a tax,
• a subsidy,
• a price increase due to shortages,
• a wage change for workers,
• or a technology change that affects production costs.

Your job is to identify:

1. Who is affected (consumer, firm, government, foreign buyers/sellers)?
2. What changes in the model (price, income, marginal cost, technology, preferences)?
3. What direction effects go (increase/decrease in quantity demanded, output, welfare)?

Marginal thinking: “how much more?”

Microeconomics is built on marginal comparisons:

• “If I consume one more unit, does utility rise more than the cost?”
• “If I produce one more unit, is marginal revenue greater than marginal cost?”
• “If the price changes slightly, how does quantity adjust?”

A common exam pitfall is using averages when the question is really about marginal effects.

Demand, Supply, and Market Equilibrium

Demand as willingness to pay

Demand typically describes a relationship between:

• Price (P)
• and Quantity demanded (Qd)

Demand curve slopes downward due to:

1. Substitution effect: consumers switch toward relatively cheaper goods.
2. Income effect: for normal goods, higher prices reduce real purchasing power.

Supply and marginal cost intuition

Supply depends on how firms can produce and the costs they face. In competitive markets:

• the firm’s supply is related to marginal cost (MC),
• and industry equilibrium tends to align price with marginal cost.

Equilibrium

Market equilibrium occurs where:

• Qd = Qs

If price is above equilibrium, typically:

• Qs > Qd → excess supply → downward pressure on price.

If price is below equilibrium:

• Qd > Qs → excess demand → upward pressure on price.

Elasticity: The “Translation Tool” for Policy and Shocks

Elasticity measures responsiveness. In EKN 214, you’ll use elasticity to predict effects of taxes, subsidies, price controls, and revenue changes.

Price elasticity of demand (PED)

[
PED = \frac{%\Delta Qd}{%\Delta P}
]

Key interpretations:

• |PED| > 1: elastic demand (quantity responds strongly)
• |PED| < 1: inelastic demand
• |PED| = 1: unit elastic

Exam diagram skill: On a straight-line demand curve, elasticity changes along the curve.

• Near the midpoint, elasticity is around -1 depending on scaling.
• Closer to the top-left, elasticity tends to be higher (more elastic in absolute value).

Income elasticity and cross-price elasticity

• Income elasticity: whether a good is normal or inferior
  • normal good: positive income elasticity
  • inferior good: negative income elasticity
• Cross-price elasticity:
  • positive for substitutes
  • negative for complements

Elasticity and tax incidence

A classic exam structure:

• If demand is more inelastic than supply, consumers bear a larger share of the tax.
• If supply is more inelastic than demand, firms/producers bear a larger share.

This matters because many real-world policies in South Africa—like taxes on alcohol and fuel—often hit markets where consumers cannot easily switch away from the good in the short run.

Consumer Preferences and Utility Maximization

Preferences: completeness and transitivity

To model consumer choice, the course typically assumes:

• Completeness: the consumer can compare any two bundles (A is preferred to B or B to A).
• Transitivity: if A > B and B > C, then A > C.

Utility functions and indifference curves

An indifference curve represents combinations of goods that give the consumer the same utility.

Key properties:

• Indifference curves are typically downward sloping
• They do not intersect (otherwise preferences would be inconsistent)
• The slope relates to the marginal rate of substitution (MRS).

Marginal rate of substitution (MRS)

MRS is how much of good Y the consumer is willing to give up to get an extra unit of good X while staying at the same utility level.

Exam technique:

• Use the relationship between MRS and the budget line slope to determine the optimal choice.

Budget Constraint and Optimal Choice

A consumer with income (I) faces prices (P_x) and (P_y):
[
P_x x + P_y y = I
]

The budget line slope:
[
\text{slope} = -\frac{P_x}{P_y}
]

Tangency condition for optimum

At the optimum (interior solution), the indifference curve is tangent to the budget line:
[
MRS_{x,y} = \frac{P_x}{P_y}
]

This is a central statement for many exam questions. You should be able to:

• interpret it economically,
• draw it,
• and explain what happens if the tangency condition does not hold.

Income and Substitution Effects (and Why “Normal vs Inferior” Matters)

When a price changes, the total change in quantity demanded can be decomposed into:

1. Substitution effect: relative price change induces substitution
2. Income effect: real purchasing power changes

Normal vs inferior goods

• Normal good: income effect moves quantity in the same direction as price’s effect on purchasing power.
• Inferior good: income effect moves quantity in the opposite direction.

The Giffen good idea (rare but exam-relevant)

A Giffen good is inferior enough that the income effect dominates substitution, leading to:

• higher price → higher quantity demanded.

You may be asked to explain why Giffen goods are unusual and depend on:

• steep inferior effect,
• strong necessity-like characteristics.

Worked Exam Example: Choosing Between Two Goods

Assume a student chooses between:

• textbooks (x)
• transport vouchers (y)

Let:

• Income (I = 120)
• (P_x = 20)
• (P_y = 15)

Budget line:
[
20x + 15y = 120
]

Compute intercepts:

• If (y = 0): (20x = 120 \Rightarrow x = 6)
• If (x = 0): (15y = 120 \Rightarrow y = 8)

If a question asks: “What happens when price of textbooks rises to (P_x = 24)?”

• the budget line rotates inward around the y-intercept (since (P_y) and (I) stay fixed)
• substitution effect reduces x
• income effect depends on whether textbooks are normal or inferior in the hypothetical preferences.

This is the kind of structured explanation examiners reward: identify what rotates, what stays fixed, and what economic mechanism changes quantity.

Section 2: Production, Costs, and Perfect Competition (South Africa-Relevant Applications)

In microeconomics, firms exist to produce goods. The bridge between consumer demand and firm supply is the firm’s production technology and how it faces costs.

Production Functions and Efficiency

Production function

A production function describes maximum output given inputs:
[
q = f(L, K)
]
where:

• (L) = labor
• (K) = capital

Even if your course simplifies production, the concepts of:

• diminishing marginal product,
• returns to scale,
• substitutability of inputs
  are crucial for cost reasoning.

Marginal product and diminishing marginal returns

• Marginal product of labor:
  [
  MP_L = \frac{\Delta q}{\Delta L}
  ]
  If (MP_L) decreases as labor increases (holding capital constant), you have diminishing marginal returns.

Exam explanation style:

• A factory might hire more workers, but machinery becomes bottlenecks.
• Wages may increase, but output rises less than proportionally.

Returns to scale

• Increasing returns to scale: doubling inputs more than doubles output
• Constant returns: doubling inputs doubles output
• Decreasing returns: doubling inputs less than doubles output

This matters for industry structure and long-run costs.

Cost Structures: Fixed, Variable, and Marginal Costs

Let output be (q). Costs are typically decomposed:

Fixed cost (FC) and variable cost (VC)

• FC: costs that do not vary with output in the short run
• VC: costs that do vary with output

Total cost:
[
TC = FC + VC
]

Average costs:

• Average fixed cost:
  [
  AFC = \frac{FC}{q}
  ]
• Average variable cost:
  [
  AVC = \frac{VC}{q}
  ]
• Average total cost:
  [
  ATC = \frac{TC}{q}
  ]

Marginal cost:
[
MC = \frac{\Delta TC}{\Delta q}
]

A standard exam graph: MC intersects ATC and AVC at their minimum points.

• If MC < ATC, ATC falls
• If MC > ATC, ATC rises

Short-Run Decision Rules in Perfect Competition

In perfect competition:

• many buyers and sellers,
• standardized product,
• no firm has market power,
• firms are price takers.

Let market price be (P). Then for the individual firm:

• Marginal revenue (MR) = Price (P)

Output decision

In short run, firm chooses (q) where:
[
MC = MR = P
]

Then you interpret whether firm produces, shuts down, or exits.

Shutdown rule

The firm produces if:

• price (P \ge AVC)

Shutdown if:

• price (P < AVC)

Reason:

• even if the firm covers some fixed costs, when price is below AVC it cannot even cover variable costs, so it minimizes losses by not producing.

Profit, Loss, and Economic Profit

Economic profit

[
\pi = TR – TC
]
where:

• (TR = P \cdot q)
• (TC = FC + VC)

Economic profit differs from accounting profit when including opportunity costs. In many EKN 214 assessments, the expected interpretation is:

• economic profit > 0: firm earns more than opportunity cost
• economic profit = 0: firm earns normal returns
• economic profit < 0: firm cannot cover opportunity cost

Visual interpretation with ATC

• If (P > ATC): economic profit
• If (P = ATC): zero economic profit (break-even economically)
• If (P < ATC) but (P \ge AVC): loss but still produces in short run

Long-Run Adjustments: Entry and Exit

In the long run, in perfect competition:

• firms can enter if profits exist
• firms can exit if losses persist

Long-run equilibrium condition

In competitive markets, long-run equilibrium implies:
[
P = ATC_{min}
]
so economic profit is driven toward zero.

Exam logic:

• Positive economic profit attracts entry → supply increases → price falls.
• Negative economic profit triggers exit → supply decreases → price rises.

Elasticity Link: Competitive Supply and Policy Effects

Elasticity from Section 1 matters here. When:

• cost shocks occur,
• demand shifts,
• or regulations change input prices,

the extent of price and quantity responses depends heavily on the elasticity of demand and supply.

Example structure for exam

Suppose the market price of electricity used by factories increases.

• This raises marginal and average costs.
• The supply curve shifts left (in a market sense).
• In the short run, price rises and quantity falls.
• In the long run, entry/exit and efficiency may adjust.

To score marks, connect:

• cost increase → supply contraction,
• elasticity → magnitude of price response.

Applied Scenario: A South African Competitive Market Thought Experiment

Consider a simplified market for locally produced school stationery sold in a competitive environment across multiple small retailers and producers.

Assume:

• Firms are price takers.
• A paper price increase raises variable costs.
• Technology is largely similar across firms.

Predicted outcomes:

1. Each firm’s MC and AVC increase.
2. At the existing market price (P), some firms find (P < AVC) and shut down.
3. Industry supply reduces; market price increases.
4. Over time, if economic profits become positive, entry may occur; if negative, firms exit.

Even if the real market is not perfectly competitive, exam questions like this test whether you can transfer core logic to realistic settings.

Section 3: Market Structures Beyond Perfect Competition (Monopoly, Oligopoly, and Strategic Behavior)

Real markets often deviate from perfect competition. Market power arises when firms can influence price, restrict output, or collude.

Monopoly: Demand Facing the Firm

A monopolist is the only supplier in its market. The monopolist chooses output and price based on the demand curve.

Key monopolist relationships

• Demand curve represents average revenue (AR).
• Marginal revenue (MR) is below the demand curve because selling more units requires lowering price for all units.

If demand is downward sloping:

• MR < P (for most relevant quantities)
• This creates the familiar monopoly condition:
  [
  MC = MR
  ]

Then price is read from the demand curve at the chosen quantity.

Monopoly Output, Price, and Inefficiency

Profit maximization and comparison with competition

For monopoly:

• (MC = MR) determines (q_m)
• price (P_m) is found on the demand curve at (q_m)

Compared to perfect competition (where typically (P = MC) in equilibrium for the firm):

• monopoly produces less output ((q_m) lower)
• monopoly charges a higher price ((P_m) higher)

Deadweight loss (DWL)

DWL arises because:

• some mutually beneficial trades do not occur under monopoly.
• The lost welfare is the area between the demand curve (marginal willingness to pay) and the marginal cost for units that are not produced.

Exam technique:

• You often need to label:
  • socially efficient quantity,
  • monopoly quantity,
  • DWL triangle.

Pricing Under Monopoly: Perfect Discrimination vs Simple Markups

Price discrimination idea

Price discrimination occurs when the monopolist charges different prices to different buyers or for different units.

Conditions for effective discrimination can include:

• ability to segment markets,
• preventing resale.

In advanced contexts, first-degree discrimination (charging each consumer their maximum willingness to pay) can eliminate DWL but may require knowing consumer valuations.

Two-part tariffs

A common applied model:

• a fixed fee + a per-unit price.
  This can extract consumer surplus while still motivating consumption.

While EKN 214 may not heavily test the full math of tariffs, it typically tests:

• interpretation of consumer surplus extraction,
• welfare effects relative to single-price monopoly.

Oligopoly: Interdependence and the Logic of Strategy

Oligopoly involves a small number of firms, where each firm’s payoff depends on rivals’ actions.

Cournot (quantity competition)

Firms choose quantities simultaneously.

• Each firm assumes the rival’s quantity is fixed when deciding output.
• Equilibrium results from mutual consistency.

Bertrand (price competition)

Firms choose prices simultaneously.

• Under homogeneous products and constant marginal costs, Bertrand often implies prices equal to marginal cost (resulting in intense competition).
• If products are differentiated or costs are capacity-constrained, outcomes differ.

Nash equilibrium concept

A stable strategy set:

• no firm can benefit by changing its strategy alone.

Exam questions often ask you to:

• interpret best responses,
• identify equilibrium in payoff matrices,
• and explain deviations.

Collusion: Why Cartels Often Struggle

Cartels attempt to behave like a monopoly by coordinating prices or output.

But collusion is fragile due to:

• incentives to cheat,
• asymmetry among firms,
• monitoring and enforcement difficulties.

Incentive to cheat in a cartel

If all cartel firms maintain a high price:

• each firm has an incentive to slightly undercut to capture more demand.
  Over time, repeated interaction may deter cheating through threats (grim trigger strategies, etc.), but this is complex.

In exams, even without full game theory math, you should explain:

• why collusion requires credible punishment,
• why repeated games can sustain cooperation.

Strategic Entry and Barriers

Barriers to entry include:

• economies of scale,
• absolute cost advantages (e.g., proprietary technology),
• legal barriers,
• network effects.

In an exam scenario, if a dominant incumbent has lower costs due to scale, entry by smaller firms becomes unprofitable in the short run, limiting competition.

Section 4: Welfare Analysis, Government Intervention, and Market Failure

This section ties microeconomic theory to policy. South African exam questions often emphasize welfare implications and real intervention instruments (taxes, subsidies, price controls, competition policy).

Consumer and Producer Surplus

Consumer surplus (CS)

CS is the difference between:

• what consumers are willing to pay (demand curve)
• and what they actually pay (market price)

Producer surplus (PS)

PS is the difference between:

• price received
• and marginal cost (or supply curve)

Welfare analysis uses:

• CS + PS as a measure of total surplus.

In competitive equilibrium:

• total surplus is maximized given the efficiency of the market.

Deadweight Loss and Efficiency

A welfare loss (DWL) arises when:

• the market is not allocatively efficient,
• due to taxes, monopoly power, or externalities.

Common sources:

1. Taxes create wedges between prices paid by buyers and received by sellers.
2. Monopoly restricts quantity below efficient levels.
3. Price controls often create shortages or surpluses.

Taxes: Incidence and Welfare Effects

Tax wedge

A per-unit tax (t) drives a wedge between:

• buyer price (P_b)
• seller price (P_s)
  such that:
  [
  P_b – P_s = t
  ]

Incidence depends on elasticities

Even if the tax is collected from firms, consumers may bear a share if demand is inelastic.

Welfare effects

Taxes typically:

• reduce quantity traded,
• create DWL.

But mark allocations may reward deeper reasoning:

• The DWL depends on how responsive quantity is to price changes.
• More elastic markets produce larger DWL for a given tax.

Subsidies

A subsidy encourages consumption or production and can raise quantity above competitive equilibrium.

However subsidies can:

• be costly to government,
• generate unintended effects,
• and require administrative capacity.

Fiscal burden and welfare

Subsidy causes:

• an increase in quantity,
• transfer payments to market participants,
• and possible DWL depending on how far quantities move from efficiency.

Price Floors and Price Ceilings

Price ceiling

• sets maximum price below equilibrium price
• causes shortage
• can benefit consumers who manage to obtain the good

In South African contexts, think about:

• rent control debates,
• regulated prices for certain essentials (where politically feasible).

Price floor

• sets minimum price above equilibrium
• causes surplus
• can support producers but burdens consumers and can require government purchase programs.

Exam mark schemes often require:

• draw the market,
• show shortage/surplus region,
• explain who gains and loses.

Externalities and Market Failure

Externalities occur when the actions of one party affect others without compensation.

Negative externalities (e.g., pollution)

If production creates pollution:

• social marginal cost (SMC) exceeds private marginal cost (PMC)
• competitive market leads to overproduction

The socially efficient outcome equates:
[
SMC = SMB
]
where:

• marginal benefit to society equals marginal benefit to consumers in many models.

Instruments to correct externalities

1. Pigouvian tax equal to the marginal external cost.
2. Cap-and-trade (if emissions are measurable).
3. Regulation: setting emission limits.
4. Subsidy for abatement: encouraging firms to reduce pollution.

Positive externalities (e.g., education)

For positive externalities:

• social marginal benefit exceeds private marginal benefit
• markets underproduce

Policy options:

• subsidies for education, training, R&D
• public provision or tax credits

Public Goods and Free-Riding

Public goods are:

• non-excludable and non-rival (or near enough)

A key issue: free-riding—people understate their willingness to pay because they expect others to fund the good.

Market provision often fails to achieve efficient provision levels, motivating:

• government funding,
• collective-choice mechanisms.

Asymmetric Information and Adverse Selection

If buyers cannot distinguish quality:

• average quality may fall (lemons problem).
  Insurance markets show classic adverse selection.

Policy tools:

• warranties,
• regulation requiring minimum standards,
• signaling mechanisms.

EKN 214 typically expects conceptual recognition:

• why asymmetric info can cause inefficient outcomes,
• how policy or institutions can mitigate it.

Applied Policy Logic: Interpreting Welfare in a Diagram

An exam-ready method:

1. Start with a benchmark of perfect competition equilibrium (efficient).
2. Identify the deviation (tax, monopoly, externality).
3. Determine the direction of quantity shift:
   • tax → reduces quantity
   • negative externality → increases quantity (relative to social optimum)
   • monopoly → reduces quantity
4. Use the wedge between curves:
   • demand vs supply for taxes and monopoly
   • SMC vs PMC for externalities
5. Identify welfare components:
   • transfers (CS ↔ PS ↔ government)
   • DWL (efficiency loss)

Section 5: Applied Microeconomics Skills for EKN 214 Exams (Problem-Solving, Case Practice, and Graph Reasoning)

This final section focuses on the competencies that often decide grades: step-by-step reasoning, reading graphs, constructing diagrams correctly, and explaining policy and welfare outcomes clearly.

The “Exam Graph Routine” (A Reliable Method)

Most EKN 214 problems involve diagrams. A consistent routine reduces errors.

Step 1: Identify the market and the model type

Ask:

• Is it competitive, monopoly, or oligopoly?
• Are we in short run or long run?
• Is the firm price-taker or a price-setter?

Step 2: Draw the correct curves

• Competitive firm: MC, AVC, ATC, and demand at price (P)
• Monopoly: demand, MR, MC
• Externalities: SMC vs PMC and possibly SMB vs private MB

Step 3: Locate the equilibrium/optimum condition

Examples:

• Perfect competition output: (P = MC)
• Shutdown: (P = AVC) boundary
• Monopoly output: (MR = MC)
• Externality correction: (SMC = SMB)

Step 4: Read off price and quantity

• For monopoly price, use the demand curve at chosen quantity.
• For competitive price, price is given and intersects MC.

Step 5: Label welfare regions and state direction effects

• If quantity falls below efficient level → DWL exists.
• If wedge created by tax → DWL region equals lost trades.

This routine is not just drawing—it ensures your explanation matches the diagram.

Worked Numerical Templates (So You Can Rebuild Under Exam Pressure)

Even if exams are mostly diagram-based, you may get numerical parts.

Template A: Finding consumer surplus with a linear demand

Suppose demand is linear and intersects price and quantity axes. If you are given:

• demand curve endpoints,
• equilibrium price,
  you can compute CS as a triangle area:
  [
  CS = \frac{1}{2} \times \text{base} \times \text{height}
  ]

Similarly PS can be computed with supply curve endpoints or using MC.

Template B: Profit with given price and costs

If a firm produces (q) at price (P):

• TR = (Pq)
• TC = FC + VC(q)
• Profit = TR − TC

You must be careful about:

• whether costs given are total or variable,
• units (Rand amounts, per unit, etc.).

Case Practice: South African Market Policy Questions (Conceptual Models)

South African universities frequently frame problems in a way that resembles policy debates. You should be ready to analyze:

• regulated prices,
• competition policy,
• taxes and public finance,
• agricultural price support,
• and externality regulation (like emissions controls).

Case Type 1: Minimum wage as a price floor in labor markets

A minimum wage can be analyzed as a wage floor above equilibrium:

• unemployment may rise if supply/demand respond strongly
• but if labor demand is relatively inelastic, unemployment effects may be smaller

In a strong answer:

• define labor market demand as derived from marginal product
• state equilibrium wage
• show what happens when wage floor is introduced
• interpret who bears costs and why.

Case Type 2: Subsidies for a merit good (e.g., training)

If training has positive externalities:

• market underprovides
• subsidy can move consumption closer to the socially optimal level
• welfare gains come from reduced underconsumption, not just transfers

A top answer distinguishes:

• transfer (government pays)
• efficiency gain (closer to social optimum)

Case Type 3: Tax on a harmful activity

If a tax is levied per unit of harmful output:

• it raises private costs
• consumption/output may reduce
• correct if tax equals marginal external harm (conceptually Pigouvian)

You may be asked to discuss “why not set the tax too high?”

• because excessive taxes can create large DWL
• because the marginal external harm may be uncertain

Common Exam Traps (and How to Avoid Them)

Trap 1: Confusing accounting and economic profit

• Accounting profit ignores opportunity costs.
• Economic profit subtracts opportunity costs.
  For long-run equilibrium in perfect competition, the expected statement is economic profit tends toward zero, not accounting profit.

Trap 2: Saying “tax paid by the government” ignores incidence

Tax incidence:

• depends on elasticities,
• not who writes the check.

Always phrase it:

• “Consumers and producers share the tax burden; the side with more inelastic demand/supply bears more.”

Trap 3: Incorrect tangency interpretation

If the indifference curve is tangent to the budget line:

• MRS equals price ratio.

If it is not tangent:

• you can reallocate spending to increase utility.

Trap 4: Mixing up MR and demand under monopoly

Students often incorrectly set (MR = P). Under monopoly:

• (MR < P) (except possibly at the very beginning depending on demand form).
  For monopoly efficiency:
• use (MR = MC).

Trap 5: Wrong shutdown/exit logic

Shutdown is short run:

• if (P < AVC), shutdown
  Exit is long run:
• negative economic profit implies exit

Building Strong Explanations: The “Claim–Graph–Mechanism–Conclusion” Pattern

To maximize marks, structure your answers.

Claim

State the conclusion in words:

• “Quantity demanded decreases when price rises due to substitution and income effects.”

Graph

Mention what happens to curves:

• “Demand shifts along the curve; supply/demand intersection changes.”

Mechanism

Explain why:

• “Consumers substitute to cheaper alternatives and lose purchasing power.”

Conclusion

Restate direction and magnitude logic:

• “If demand is more elastic, the quantity response is larger.”

This pattern is especially effective in essays and long answer questions.

Summary Checklist for EKN 214 Mastery

Use this list as a final pre-exam self-test.

Demand and elasticity

• I can define and compute PED conceptually.
• I can explain how elasticity affects tax incidence and DWL.
• I can interpret income and cross-price elasticity.

Consumer choice

• I can state and apply the tangency condition (MRS = P_x/P_y).
• I can explain substitution vs income effects.
• I can identify normal vs inferior goods and the meaning of Giffen behavior.

Production and costs

• I can define FC, VC, TC, AFC, AVC, ATC, MC.
• I can interpret how MC relates to ATC minima.
• I can apply short-run shutdown rule (P < AVC).

Perfect competition

• I can state output condition (P = MC).
• I can interpret profit/loss using ATC.
• I can describe long-run entry/exit and long-run zero economic profit.

Monopoly and oligopoly

• I can use (MR = MC) for monopoly.
• I can explain why MR lies below the demand curve.
• I can describe DWL under monopoly.
• I can interpret interdependence under oligopoly with Nash equilibrium ideas.
• I can explain collusion instability.

Welfare and policy

• I can compute or describe CS/PS and DWL regions.
• I can explain tax/subsidy welfare effects and incidence.
• I can analyze price ceilings/floors and shortages/surpluses.
• I can explain externalities, SMC/PMC, and Pigouvian correction.

Concluding Notes

Microeconomics becomes powerful when you can connect theory to graphs, then graphs to policy. In EKN 214, the core skills are: using marginal logic correctly, identifying which curves shift versus which move along a curve, and translating that into welfare implications. With consistent diagram routines and clear explanation structure, you can handle demand and elasticity questions, consumer optimization, firm cost and output decisions, competitive market adjustments, and welfare analysis for policy intervention.

Whether your assessments emphasize computations, diagrams, or short essay arguments, mastery is demonstrated by accuracy and coherence: the same economic story should appear in your equations, labels, and final written interpretation.