Part 3 presents the foundations of demand and supply. The theory of
consumer behaviour is developed via marginal utility theory in Chapter
6 , which also provides an introduction to consumer surplus and an
intuitive discussion of income and substitution effects. The Appendix to
Chapter 6 covers indifference curves, budget lines, and the derivation of
demand curves using indifference theory. Chapter 7 introduces the firm
as an institution and develops short-run costs. Chapter 8 covers long-
run costs and the principle of substitution and goes on to consider shifts
in cost curves due to technological change. The latter topic is seldom if
ever covered in the micro part of elementary textbooks, yet applied work
on firms’ responses to changing economic signals shows it to be
extremely important.
The first two chapters of Part 4, Chapters 9 and 10 , present the
standard theories of perfect competition and monopoly with a thorough
discussion of price discrimination and some treatment of international
cartels. Chapter 11 deals with monopolistic competition and oligopoly,
which are the market structures most commonly found in Canadian
industries. Strategic behaviour plays a central part in the analysis of this
chapter. The first half of Chapter 12 deals with the efficiency of
competition and the inefficiency of monopoly. The last half of the chapter
deals with regulation and competition policy.
Part 5 begins with Chapter 13 , which discusses the general principles of
factor pricing and how factor prices are influenced by factor mobility.
Chapter 14 then examines the operation of labour markets, addressing
issues such as wage differentials, discrimination, labour unions, and the