MICROECONOMICS

Reading
Pre-reading activity

Read the following questions and try to answer them. Then, read the text and check if your
answers were correct:

1. What is the difference between microeconomics and macroeconomics?

2. What is the relation between the concept of utility and that of happiness?
3. Which are the restraints limiting consumption?
4. Which could be the inputs of a firm?
5. What is the field of study of behavioural economics?
6. What is the labour economics focused on?

Reading

Read the following text about microeconomics:

Microeconomics is the branch of economics that studies the behaviour of individual
consumers and firms. Unlike macroeconomics, which attempts to understand how the
collective behaviour of individual agents shapes aggregate economic outcomes,
microeconomics focuses on the detailed study of the agents themselves, by using rigorous
mathematical techniques to better describe and understand the decision-making
mechanisms involved.

The branch of microeconomics that deals with household behaviour is called consumer
theory. Consumer theory is built on the concept of utility: the economic measure of
happiness, which increases as consumption of certain goods increases. What consumers want
to consume is captured by their utility function, which measures the happiness derived from
consuming a set of goods. Consumers, however, are also bound by a budget constraint, which
limits the number or kinds of goods and services they can purchase. The consumers are
modelled as utility maximisers: they will try to purchase the optimal number of goods that
maximises their utility, given their budget.

The branch of microeconomics that deals with firm behaviour is called producer theory.
Producer theory views firms as entities that turn inputs – such as capital, land, and labour –
into output by using a certain level of technology. Input prices and availability, as well as the
level of production technology, bind firms to a certain production capacity. The goal of the
firm is to produce the amount of output that maximises its profits, subject to its input and
technology constraints.
Consumers and firms interact with each other across several markets. One such market is the
goods market, in which firms make up the supply side and consumers who buy their products
make up the demand side. Different goods market structures require microeconomists to
adopt different modelling strategies. For example, a firm operating as a monopoly will face
different constraints than a firm operating with many competitors in a competitive market.
The microeconomist must therefore take the structure of the goods market into account
when describing a firm’s behaviour.

Microeconomists constantly strive to improve the accuracy of their models of consumer and
firm behaviour. On the consumer side, their efforts include rigorous mathematical modelling
of utility that incorporates altruism, habit formation, and other behavioural influences on
decision making. Behavioural economics is a field within microeconomics that crosses
interdisciplinary boundaries to study the psychological, social, and cognitive aspects of
individual decision making by using sophisticated mathematical models and natural
experiments.

On the producer side, industrial organisation has grown into a field within microeconomics
that focuses on the detailed study of the structure of firms and how they operate in different
markets. Labour economics, another field of microeconomics, studies the interactions of
workers and firms in the labour market.

(Adapted from: https://www.britannica.com/topic/microeconomics)

Pronunciation
Read the following words, paying attention to their pronunciation:

1. boundary [boun-duh-ree, -dree / ˈbaʊnd(ə)ri]

2. rigorous [rig-er-uhs / ˈrɪɡərəs]
3. aggregate [ag-ri-git / ˈæɡrɪɡət]
4. purchase [pur-chuhs / ˈpɜː(r)tʃəs]
5. behavioural [bih-heyv-yer-al / bɪˈheɪvjərəl]

Vocabulary enrichment: derivation and compounding

Derivation is the process of forming new words from existing ones by adding
affixes (in this case, suffixes). There are derivational patterns and their suffixes
which alter the lexical category.
Compounding is the process of forming new words on the basis of existing ones,
and they can be written as single words, as words with hyphen or as separate
 words. Unlike derivation, the elements of a compound are all independent words
that can be used by themselves (e.g. lily of the valley).

Word derivation: nouns

• Adjective to noun: • Verb to noun (agent):

- (i)ty (hybrid → hybridity) - ant (assist → assistant)
- ism (ideal → idealism) - ee (refer → referee)
- ness (slow → slowness) - ent (correspond → correspondent)
- er (manage → manager)
• Verb to noun (abstract):
- al (dispose → disposal) • Noun to noun:
- ance (deliver → deliverance) - hood (neighbour → neighbourhood)
- ation (inform → information) - ian (history → historian)
- ence (depend → dependence) - (i)cist (physics → physicist)
- ication (simplify → simplification) - ment (base → basement)
- iety (vary → variety) - ship (member → membership)
- ment (state → statement)
- sion (conclude → conclusion)
- ssion (transmit → transmission)
- (p)tion (assume → assumption)
- ure (expose → exposure)

Exercises

The following words are verbs. What are the noun forms?

1. to consume → _________________
2. to purchase → _________________
3. to behave → _________________
4. to invoice → _________________
5. to produce → _________________
6. to complain → _________________
7. to pay → _________________
8. to compete → _________________
9. to supply → _________________
10. to sign → _________________
 Adjective derivation

Prefixes: • Nouns to adjectives:

- are mainly used to express the opposite: - able (comfort → comfortable)
- dis- (regarded → disregarded) - al (person → personal)
- il- (legal → illegal) - ary (element → elementary)
- ir- (rational → irrational) - en (wood → wooden)
- in- (capable → incapable) - free (care → carefree)
- im- (patient → impatient) - ful (care → careful)
- un- (pleasant → unpleasant) - less (hope → hopeless)
Suffixes: - ic (periodic → periodic)
• Verb to adjective: - ical (poet → poetical)
- ing (interest → interesting) - ly (friend → friendly)
- ant (please → pleasant) - ous (courage → courageous)
- ent (urge → urgent) - y (wit → witty)
• Adjective to adjective:
- ish (red → reddish)

Exercises

Exercise 1.
Which are the adjectives formed from the terms below?

1. behaviour → __________________
2. region → __________________
3. success → __________________
4. base → __________________
5. penny → __________________
6. to produce → __________________
7. cost → __________________
8. courtesy → __________________
9. month → __________________
10. to compete → _________________
11. to vacate → _________________
12. rely → _________________
 Exercise 2.
Form the opposite of the adjectives in parentheses by adding negative prefixes:

The true test of your abilities as a leader is how gracefully you handle 1. (reasonable)
___________ employees. Your colleagues, co-workers, and other employees will likely take
note of your reactions to a 2. (respectful) ___________ employee's treatment of you. To
ensure you handle things as professionally as possible, here are a few tips for managing these
3. (subordinate) ___________ workers. Initially, try asking the employee to express any
concerns and offer to repair any 4. (settled) ___________ issues you can. Employees tend to
feel 5. (heartened) ___________ when they believe their opinions don't matter to the
organisation as a whole. Having your 6. (ambiguous) ___________ expectations of that
employee outlined in writing will help. Outline the duties of that specific job and make sure
the employee has the support necessary to complete those duties. Many issues of 7.
(contented) ___________ employees are the result of a lack of communication. If your efforts
are still 8. (effective) ___________ in improving the employee's overall attitude, you'll
probably have to initiate disciplinary action.

Exercise 3
Sometimes suffixes can create adjectives with different or antithetical meanings.
Choose the correct form of the adjectives derived from the words in brackets to
complete the following sentences:

1. John is such a ___________ employee, we greatly rely on his work, but the problem is that
all his colleagues are ___________ on him. (depend)
2. The whole department is ___________ on his achievements and ___________ help. (rely)
3. A ___________ approach would be to delegate some of his tasks to other members of his
team, but be aware that he is ___________ to changes in his routine. (sense)
4. I am ___________ that you will keep this discussion ___________. (confide)
5. I also tried to speak to his team leader, but he was not very ___________ to any suggestion,
so I turn to you. I don't want to be held ___________ for not having created a good work
environment which is essential for our success. (response)

Compound words - exercises

Exercise 1.
Read the text underneath and fill in the blanks with the suitable compound
words given below:
overtake, stand-up, award-winning, online, undergoes, on-demand, private-
label, housewife.
An 1. ________________ series, “The Marvellous Mrs Maisel”, follows the fortunes of a
woman in the 1950s who 2. ________________ an unlikely transformation from a typical 3.
________________ of the day into a talented 4. ________________ comedian. It is produced
by Amazon and can be viewed on Prime Video, the e-commerce giant’s 5. ________________
service. Since its birth in 1994, Amazon has starred in several dramatic metamorphoses of its
own. It has pushed beyond retailing into fields as varied as electronic books, 6.
________________ goods and cloud computing, as well as 7. ________________ video. Now
it is intent on becoming a force in digital advertising.
Amazon has a long way to go before it catches up with the giants of the industry. But Amazon
started experimenting with ads only six years ago, and its young business is growing fast in a
rapidly expanding market. By the end of the year it will 8. ________________ Microsoft, a
software giant, and Verizon, a big telecoms firm, to rank third in America, according to
eMarketer, a research firm.

Exercise 2.
Form compound adjectives matching the words in the two columns and use them
to fill in the blanks in the sentences below:

widely minded
last saving
time educated
absent recognised
strong thinking
narrow minute
short world
forward minded
well willed
developing sighted

1. A ______________ person is not easily discouraged or intimidated.

2. Researchers developed a cost-effective and ______________ method for calculating
induction-motor performance.
3. A ______________ person needs visual aid in order to achieve a sharp far-distance image.
4. The new CEO seems to be ______________, she is proposing some very interesting reforms
to the company's management system.
5. She is a ______________ expert in economics, specialised in demonetisation.
6. Courteous, _____________ leaders create a comfortable work environment for their
employees.
7. Lack of management is the biggest obstacle to decent health care in the ______________.
8. It would be ____________ not to treat equally workers from disadvantaged groups.
9. Getting a ______________ request to change a significant plan can make you react in a
manner that might surprise you in retrospect.
10. While attending the conference Jim did some ______________ things which were
detrimental to his career.
 Exercise 3
The text below describes methods of assessing the efficiency of marketing
strategies and it contains 15 compound words. They can be nouns, adjectives,
adverbs or prepositions. Read the text and try to find all 15 compound words:

Measuring Input, Throughput, Output, and Outcomes

There are clear methods for arriving at a solid return on investment for marketing time
and spend, and it's not about the 'vanity metrics' of email open rates, Facebook likes, or
Google Analytics page views. Instead, it's about how you measure and understand input,
throughput, output, and outcomes.
Before content is created, emails are sent, and ads are placed, marketers work with
stakeholders on capturing expectations and defining the scope of each project. Though every
marketer uses a calendar to track their deliverables and deadlines, the input goes a step
before even this critical tool.
Far from being merely a collection bin of ideas and project requests, the backlog
represents the sheer volume of possible work that must be prioritized and doled out.
Combined with the master editorial calendar, which includes upcoming due dates and key
milestones for events, the backlog helps both the marketing team and the stakeholders
visually comprehend the enormity of possible work that faces the marketing team.
While the backlog of possible work is obviously helpful for the marketer, it also clues
stakeholders from other business units into the bigger picture of how their project request
must fit into the workflow of competing projects. Yes, this means the backlog is actually visible
to those outside of marketing.
How much work did your team get done? To answer this question, one must know the
timeframe for the team's workload. There's no magic number to attain when measuring
throughput. It's either about how much work the team got done compared to what they
estimated they could do at the beginning or about the cycle time required to move from one
task to the next.
Every marketer knows about measuring output, because they're keenly focused on
marketing deliverables. However, measuring the wrong kinds of outputs leads to false
assumptions about the value of marketing's efforts. Examples abound in the marketing world
of campaigns that failed miserably in spite of high email open rates, good click-through rates,
solid landing page views, and plenty of social media engagement when all of those actions
lead to poor conversion rates for Marketing Qualified Leads (MQLs).
The ultimate marketing conversion rate is tied back to a business outcome and not a
marketing deliverable, as marketing exists to enable the organization to meet business
objectives.
Key:
1. _________________ 6. _________________ 11. ________________
2. _________________ 7. _________________ 12. ________________
3. _________________ 8. _________________ 13. ________________
4. _________________ 9. _________________ 14. ________________
5. _________________ 10. ________________ 15. ________________
 Multi-meaning verbs: ‘to buy’ & 'to sell'
The verbs ‘to buy’ / 'to sell' can have different meanings, depending on the context.
'To buy'
Match the situations described in column A with the suitable definition of ‘to buy’
in column B, according to the meaning:
A B
1. Liverpool bought a new attacking midfielder a. to acquire the possession of, to
player. purchase
2. The board has decided to buy into Gold b. to acquire by exchange or
Enterprise, investing €15.6 million in stocks. concession
3. It took a lot of elbow grease to get here: success c. to hire or obtain the services of
is dearly bought someone
4. Don't give me this story, it is not plausible, I don't
d. to bribe
buy it.
e. to be the monetary or purchasing
5. We bought new computers for the office.
equivalent
6. Fifty Euros buys less now that it did last year. f. to accept or believe
7. He thinks that he can buy my favour with flattery. g. to purchase shares of (a company)
8. The minister claimed that she could not be
h. to get by sacrifice or great effort
bought.
Key: 1. ___, 2. ___, 3. ___, 4. ___, 5. ___, 6. ___, 7. ___, 8. ___

'To sell'
Now do the same as above for the verb 'to sell':

A B
1. He has sold 1 million copies of his record since its a. to win acceptance, approval,
release. adoption
b. to give up or surrender for a
2. I wonder if they also sell evening gowns here. price or reward
c. to persuade or induce others to
3. Their designer dresses sold really well last year. buy, as a salesperson
4. We should hire Michael, he is really good at selling d. to force or exact a price for
anything. something
5. We could try, but I don't think that this idea will sell
e. to have a specific price
to the public.
f. to exchange something for
6. He sold his integrity for political power and success.
money
g. to be in demand, to be
7. The guards of the citadel sold their lives at great price. purchased by a lot of people
h. to have a supply of a particular
8. This cardigan sells for 20 Euros. product for customers to buy

Key: 1. ___, 2. ___, 3. ___, 4. ___, 5. ___, 6. ___, 7. ___, 8. ___

 Phrasal verbs
Phrasal verbs, or multi-word verbs, are verbs which, combined with one or two
particles (a preposition or adverb), form verbs with new meanings. These new
meanings are usually non-literal. For example, 'to throw' means to send
something through the air (He threw the pencil to me), but 'to throw in' means to
add as a bonus or gratuity (They throw in breakfast with the room).

Phrasal verbs: 'to buy'

Complete the sentences using the phrasal verbs in the box. Make the necessary
changes:

1. Lots of people were waiting in line in

order to ______________ all the a. To buy in = to buy a supply of;
frying pans they could find at cut accumulate a stock of
prices.
b. To buy into = to start doing something
2. John ______________ his partner that a lot of other people are doing, or to
when she decided to retire from the believe something that a lot of other
business people believe
3. The cost of ______________ a c. To buy off = to pay someone to stop
mortgage rate is quoted in discount threatening you or blackmailing you
points.
4. They have been __________ ____ d. To buy out = to buy somebody's share in
decorations and accessories for a company
Christmas.
5. The politician tried to __________ e. To buy up = to buy as much as one can of
____ the journalist, but the latter something or as much as is offered for
reported this illegal activity. sale
6. I have never ______________ the idea f. To buy down = to pay an upfront fee to
of world peace and universal reduce the interest rate of a loan.
cooperation.

Key: 1. ___, 2. ___, 3. ___, 4. ___, 5. ___, 6. ___

 Phrasal verbs: 'to sell'

Complete the sentences using the phrasal verbs in the box. Make the necessary
changes:

1. The board _____me _____ the

benefits of working with them, so I a. To sell off = to sell, especially at reduced
decided to take them up on their prices, in order to get rid of something.
offer.
2. They had to _________ most of their b. To sell out = to betray (an associate,
belongings before they emigrated. one's country, a cause, etc.); turn traitor.
3. Their new play was so appreciated c. To sell forward = to make an
that for each performance tickets arrangement to sell foreign currencies,
were __________ two months in commodities etc. for delivery at a later
advance. date.
d. To sell on = to persuade or induce
4. He __________ his team for (someone) that something is good,
substantial monetary gains. valuable, useful.
5. Despite the __________ in gold, the
declines will be cushioned because e. To sell into = to sell shares or bonds in a
the central banks will be bidding to particular situation.
buy back what they sold forward.
6. The usual strategy of our bank is to f. To sell out/up = to dispose of entirely by
__________ a stable or bull market. selling.

Key: 1. ___, 2. ___, 3. ___, 4. ___, 5. ___, 6. ___

End of unit test

Exercise 1
Find the derived and compound words in the following text:

Consumer theory is the study of how people decide to spend their money, given their
preferences and budget constraints. A branch of microeconomics, consumer theory shows
the process of decision-making, despite restrains such as their income and the prices of goods
and services. Through consumer theory, we are better able to understand how individuals’
tastes and incomes influence the demand curve. These choices are among the most critical
factors, shaping the overall economy. But how can an outsider predict how people are most
likely to spend their money? Limitations exist. People are not always rational, for example,
and occasionally they are indifferent to the choices available. Some decisions are particularly
difficult to make, because consumers are not familiar with the products, or the decision has
an emotional component that isn't able to be captured in an economic function.

Exercise 2
Choose the correct form of the adjectives in brackets to complete the sentences:

1. The number of animals used for (experimenting / experimental) and other (scientifical /
scientific) purposes has decreased.
2. His message is so (confusing / confused), that I didn't know what to say.
3. The opportunity costs of resources employed are an important aspect in (economic /
economical) research.
4. Going to work by bus proves to be more (economic /economical) than going by car
5. This is a (classical / classic) Chevrolet from 1957.
6. It is a chilly, (crisp /crispy) evening.
7. It is not (politic / political) to raise this matter at the next meeting.
8. The (logical / logic) solution would be a more tactful approach.
9. We need an (electric / electrical) generator to store the bacterial samples in optimum
condition.
10. The presence of such medical conditions as (chemic / chemical) or (electric / electrical)
burns may increase the risk factor considerably.