Microeconomics
Microeconomics is the study of individual decision-making by consumers, businesses, and households regarding the allocation of scarce resources. It analyzes the production and consumption of goods and services on a small scale.
Key Concepts
Supply and Demand
- Supply: The quantity of a product that producers are willing and able to sell at various prices.
- Demand: The quantity of a product that consumers are willing and able to buy at various prices.
- The intersection of supply and demand determines the equilibrium price and quantity for the product.
Elasticity
- Price Elasticity of Demand (PED): Measures the responsiveness of quantity demanded to a change in price.
- Income Elasticity of Demand (YED): Measures the responsiveness of quantity demanded to a change in income.
- Cross Elasticity of Demand (XED): Measures the responsiveness of quantity demanded to a change in the price of a related good.
Market Structures
- Perfect Competition: Many small firms producing identical products for an identical price.
- Monopoly: A single firm dominating the market for a unique product.
- Oligopoly: A few firms in control of a market of similar but not identical products.
- Monopolistic Competition: Many small firms producing differentiated products.
Externalities
- Positive externalities: Third-party benefits from the production or consumption of goods or services.
- Negative externalities: Third-party costs from the production or consumption of goods or services.
Important Information
- Microeconomics helps us understand how markets work and how individuals, firms, and governments can make better decisions about resource allocation.
- Preferences, opportunities, and information are important factors affecting decision-making in microeconomics.
- Microeconomics is used to analyze and understand a wide range of issues, such as pricing, consumer behavior, labor markets, and environmental policies.
Takeaways
- Understanding supply, demand, and elasticity is key to analyzing how markets operate.
- There are different market structures with different levels of competition and pricing power.
- Externalities are external costs or benefits that are not included in market transactions, but can impact welfare and efficiency.
- Microeconomics provides tools for decision-making for businesses, consumers, and policymakers.