MEMBERS : UROOJ MALIK

HUMMAIRA BIBI
TAYYBA ROUF
TOPIC : ECONOMIC ACITIVITY
SUBJECT : MICROECONOMICS 2
SEMESTER : BS (V)
SUBMITTED TO : SIR ALAMZEB
DEPARTEMENT : ECONOMICS
ANALIZING ECONOMIC MODEL

 A study of economic systems, a production process,

or an industry it determine whether something is
operating effectively. There are four ways of verify
OR analyze the economic models.
 THE PROFIT MAXAMAIZATION MODEL
 TESTING ASSUMPTION
 TESTING PREDICTION
 IMPORTACE OF IMPERICAL ANALYSIS
 CONSTRUCTING ECONOMIC
MODEL
 Simple model making
 Art of choosing right
simplifications
 Adopting general model
that is best capable to
explain the economic
situation we are
examining.
 Allowing the model to
become more complex
and more realistic.
 RESERVATION PRICE
 A reservation price is a limit on the price of a good
or a service. On the demand side, it is the highest
price that a buyer is willing to pay; on the supply
side, it is the lowest price a seller is willing to accept
for a good or service.
   For Example: A unit price of one good is $50.
When the number of buyers is between two and
five, the unit price of the good becomes $40, i.e.,
they can purchase the good at a $10 discount.
 Equilibrium in the competitive
market
 Competitive equilibrium is
achieved when profit-
maximizing producers and
utility-maximizing consumers
settle on a price that suits all
parties. At
this equilibrium price, the
quantity supplied by producers
is equal to the quantity
demanded by consumers.
 For example: here we can take
the example of apartment
which are the close to the
university.
TYPES OF MARKE
COMETATION
 ASSUMPTION OF BUDGET
CONSTRIAN
When the income of the
consumer limits their
consumption behaviors, it is
known as budget constraint.
There are three assumption

of budget constraint.
Income of the consumer is

know
Two commodities

Market price is known

AFFORDABLE CONSUMTION
BUNDEL
 PROPERTIES OF BUDGET LINE
 Budget line has set of bundles which cost m:
 P1X1+ P2X2=m
 The Budget line gives prices(p1,p2) and income(m)
 If consumer spent all of her income on x2. The point on the
graph shows m/p2.
 If consumer spent all of her income on x1. The point on the
graph shows m/p1
 The horizontal and vertical intercept measure the consumer
will get when she spent all of her money on x1 and x2
respectively.
 The budget line is shown when two points on the appropriate
axes of the graph are connected with a straight = line
 CONTINUED

 The heavy line is the budge

constraint. These bundles cost
exactly m.
 The budget below the line are
less than m.
 When budget line in equation
1 is arranged into formula
p1x1 + p2x2=m
P2x2=m - p1x1
 BUDGET CONSTRIANT TO
MAXIMIZE THE UTILITY
 Budget constraint follow the primary objective of utility
maximization by answering these question: Why
affordable set of goods & services will maximize by
happiness?
 The word Affordable here is linked to budget
constraint.
 Meanwhile Happiness is linked to indifference curves.
 A notable practical application to this concept is its use
in the field of consumer theory as a tool to examine the
parameters of consumer choice.
 STRATAGIES TO STABALIZE
MARKET DEMAND AND SUPPLY
 The equilibrium price in a competitive market is
determined by the interaction of all buyers and
sellers in the market.
 The price of good in a competitive market is
determined by the interaction of the market
demand & supply for the good.
 When price and quantity is at an equilibrium there
is no shortage or surplus in the market.
 We need the equilibrium strategies in order to
stabilized the marked demand and supply.