SFC 2 Lecture 2 2025.pdf dsdfsffsferrwerw

microeconomics

1. SFC 2: Basic Economics and
Health Economics
Soumitra Ghosh
CHPPM, SHSS
Tata Institute of Social Sciences

2. Efficiency and Equity
•Why a market economy?(They are considered to be more efficient)
•Efficiency
•Technicalefficiency
•Allocative efficiency
•Inefficiencies
•Equity
•Can the economy grow forever? (youtube.com)

3. Since 1980 the economy moved from strict command to a more market-oriented one
with significant private ownership and business flexibility.
Income Inequality in China

4. Income inequality in India
Figure 1: Income share of top 1%
Source: Chancel and Piketty (2017)
The top 10% and top 1% in India hold 57% and 23% of the total national income respectively
(Source: World Inequality Report 2024)
The Rise of the Billionaire Raj

5. Figure: Top 1% national income share, India, 1922-2022

6. Figure: Bottom 50% vs Top 1% national income shares, India, 1951-2022

7. Figure: Middle 40% vs Top 10% national income shares, 1951-2022

8. Economic models as maps
•A map is a simplified
model of reality,
highlighting only
essential details. In other
words, maps provide an
abstract representation
of real topography.
•Economic models serve
as maps, aiding our
understanding of
economic situations, just
as a map helps navigate
the geographic layout of
a city.
Delhi Road Map, New Delhi Road Networks.

9. What are economic models?
•Economic theories utilized for analyzing real-world issues.
•Answer questions like “Will India have enough physicians by 2026?”
•Building an economic model usually follows these steps
1.Work on the assumptions to build the model
2.Come up with a testable hypothesis
3.Employ economic data to test the hypothesis
4.Make changes in the model if it fails to explain the economic data well
5.Retain the revised model to help answer similar economic questions in the future
Economic variables are measurable items that can take on various values, such as
the incomes of nurses/physicians.

10. Is economics a science?
•Like natural scientists, economists employ the scientific method. But
economics is a social science which studies human behaviour as a
relationship between given ends and scarce means which have
alternative uses.”…(Robbins); studying the behavior of people is quite
challenging.
•When analyzing the behaviour of people, we can conduct:
•Positive analysis: the study of “what is?”; and/or
•Normative analysis: the study of “what ought to be?”
•Economists generally perform positive analysis.

11. Should medical education be free?
•In order to provide free education, a fraction of THE can be spent on
medical education
•Offset most if not all of the cost of medical college without the
government’s help by charging doctors for specialty training

12. Microeconomics and Macroeconomics
•Microeconomics is the study of
•how households and firms make choices,
•how they interact in markets, and
•how the government attempts to influence their choices
•Macroeconomics is the study of the economy as a whole, including
topics such as inflation, unemployment, and economic growth.

14. Determination of Prices: Interaction of DD & SS
•Demand for cell phones: How many phones do students want to
purchase?
•Price affects quantity demanded (DD of smartphones)
•Other factors, including prices of other goods affect demand
•Supply of phones
•How many phones are manufacturers willing to sell?
•Affected by price of the smartphones
•Affected by other factors, including prices of other goods
•We can analyze these in a perfectly competitive market: a market with (1) many
buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new
firms entering the market.

15. DD side of the market

16. Demand side of the market
Demand schedule: A table that shows the relationship between the price of a good and the quantity of the
good demanded.
Quantity demanded: The amount of a good or service that a consumer is willing and able to purchase at a
given price.

17. Market Demand Vs Individual Demand
•Demand curve: A curve that shows the relationship between the
price of a product and the quantity of the product demanded.
•Market demand: The quantity demanded in the market is the sum of
the quantities demanded by all buyers at each price.

18. Ceteris Paribus
•When drawing the demand curve, we assume ceteris paribus.
•Ceteris paribus (“all else equal”) condition: The requirement that
when analyzing the relationship between two variables—such as
price and quantity demanded—other variables must be held
constant.

19. Law of Demand
•Law of demand: The rule that, holding everything else constant,
when the price of a product falls, the quantity demanded of the
product will increase, and when the price of a product rises, the
quantity demanded of the product will decrease.
•Implication: Demand curve slopes downward

20. What explains the law of demand?
•When the price of a product falls, two effects cause consumers to purchase
more of it:
•The product has become cheaper relative to other goods, so consumers
substitute toward it. This is the substitution effect.
•The consumer now has greater purchasing power, and elects to purchase
more goods overall. This is income effect.
•Substitution effect: The change in the quantity demanded of a good that
results from a change in price making the good more or less expensive
relative to other goods that are substitutes.
•Income effect: The change in the quantity demanded of a good that results
from the effect of a change in the good’s price on consumers’ purchasing
power.