What is the difference between income and substitution effects in microeconomics?

A price change alters consumption because a good becomes relatively more or less attractive (substitution effect) and because purchasing power changes (income effect).

How does a per-unit tax affect a firm's optimal output?

A per-unit tax raises marginal cost, so a profit-maximizing firm generally reduces output and may raise its price, depending on market structure.

What is the First Fundamental Theorem of Welfare Economics?

It states that, under ideal competitive conditions, a market equilibrium is Pareto efficient: no one can be made better off without making someone else worse off.

Free Course Image Principles of Microeconomics

Free online course Principles of Microeconomics

Duration of the online course: 20 hours and 41 minutes

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Learn to think like an economist with a free microeconomics course: demand, costs, markets and policy tools you can use for exams, careers or business decisions.

In this free course, learn about

Consumer Choice and Demand
Production, Costs, and Competitive Firms
Market Equilibrium and Welfare
Market Power and Strategic Competition
Input Markets and Intertemporal Choice
International Trade and Uncertainty
Equity, Redistribution, and Taxation
Market Failures and Health Economics

About the free online course

Microeconomics explains how individuals, firms, and governments make choices when resources are limited. In this free online course, you will build a clear, practical way of thinking about everyday decisions: why prices change, how consumers respond, what firms try to maximize, and how markets coordinate millions of independent actions. Instead of relying on memorized definitions, you will develop intuition for the forces behind supply, demand, incentives, and trade-offs.

You will learn how preferences and utility connect to real choices, and how budget constraints shape what people can buy. From there, the course deepens your understanding of demand by exploring why a price change can alter behavior through both substitution and income effects. You will also see how producers think about technology, output, and efficiency, and how costs influence short-run and long-run decisions. These tools are the foundation for analyzing how businesses set strategy and how households respond to changing economic conditions.

As you progress, the focus shifts from individual decisions to market outcomes. You will examine competitive markets, welfare and efficiency, and the conditions under which markets allocate resources well. You will also analyze market power, learning how monopolies and oligopolies differ from perfect competition, why pricing and output change when firms have control, and what happens when cooperation is difficult. The course then expands into labor and input markets, intertemporal choice and present value, uncertainty, and the role of incentives over time.

Finally, you will connect microeconomic theory to public policy and real-world debates. You will explore international trade and comparative advantage, the balance between efficiency and equity, taxation and who really bears a tax, and why market failures such as externalities and informational asymmetry can justify government intervention. With guided practice through exercises, you will strengthen your ability to reason step by step, interpret economic logic, and apply it to problems in school, work, and everyday life.

Course content

Video class: 1. Introduction and Supply 34m
Exercise: What is a fundamental concept in microeconomics discussed in the lecture?
Video class: 2. Preferences and Utility Functions 41m
Exercise: What is the first step in the process of creating a demand curve according to Jonathan Gruber's lecture on Principles of Microeconomics?
Video class: 3. Budget Constraints and Constrained Choice 49m
Exercise: What is the budget constraint in microeconomics?
Video class: 4. Demand Curves and Income/Substitution Effects 49m
Exercise: How does the price change affect the demand, considering income effects and substitution effects?

Video class: 5. Production Theory 48m
Exercise: What is the goal of a producer in microeconomics?
Video class: 6. Costs 50m
Exercise: What is the goal of this lecture in Principles of Microeconomics by MIT?
Video class: 7. Competition I 48m
Exercise: What are sunk costs in economics?
Video class: 8. Competition II 50m
Exercise: What is the new optimal production level after a tax of $10 per unit is imposed on the cost function 10 plus 5q squared?

Video class: 9. Supply and Demand 47m
Exercise: What happens to the market for gas if everyone suddenly wants to drive SUVs?
Video class: 10. Welfare Economics 48m
Exercise: What is the First Fundamental Theorem of Welfare Economics?

Video class: 11. Monopoly I 50m
Exercise: What is the key difference between a perfectly competitive market and a monopoly market?
Video class: 12. Monopoly II 46m
Exercise: What is a natural monopoly according to Jonathan Gruber's lecture on monopolies in Principles of Microeconomics by MIT?
Video class: 13. Oligopoly 46m
Exercise: What is an oligopoly market structure?
Video class: 14. Oligopoly II 45m
Exercise: What is the reason why firms in oligopolistic markets don't always cooperate to achieve the best outcome?

Video class: 15. Input Markets I—Labor Market 50m
Exercise: What is the assumption made about the factor markets in the lecture on factor demand?
Video class: 16. Input Markets II—Labor and Capital 49m
Exercise: What would happen if a government regulation set a minimum wage below W1?
Video class: 17. Making Choices Over Time 49m
Exercise: What is the concept of present value in economics?
Video class: 18. Increasing Savings 48m
Exercise: What economic principle explains the advantage of international trade according to the discussion?

Video class: 19. International Trade: Welfare and Policy 48m
Exercise: What are the main sources of comparative advantage for a country?
Video class: 20. Uncertainty 48m
Exercise: What concept will be discussed in the lecture?

Video class: 21. Efficiency and Equity 49m
Video class: 22. Government Redistribution and Taxation 47m
Exercise: What is tax incidence in public finance?

Video class: 23. Market Failures I: Externalities 48m
Exercise: What is an externality according to Jonathan Gruber?
Video class: 23. Market Failures I: Externalities 49m
Exercise: What is an externality according to Jonathan Gruber?
Video class: 24. Market Failures II: Informational Asymmetry 48m
Exercise: What is the market failure that generates interest in government being involved in social insurance programs, according to Jonathan Gruber's lecture?
Video class: 25. Health Economics 45m
Exercise: What percentage of the US's Gross Domestic Product (GDP) is spent on healthcare?

Learn aboutMicroeconomics

Explore free online Microeconomics courses with certificates and build essential skills in supply and demand, market structures, consumer behavior, pricing, and economic decision-making. Learn at your own pace with accessible lessons for students, professionals, and anyone seeking a stronger understanding of how markets work.