Microeconomics is the study of individual economic agents consumers, firms, and markets and how they make decisions. Here are its fundamental concepts:
1. Demand and Supply
Law of Demand – As price decreases, quantity demanded increases (inverse relationship).
Law of Supply – As price increases, quantity supplied increases (direct relationship).
Equilibrium – The point where demand meets supply, determining market price.
2. Elasticity
Price Elasticity of Demand – Measures how sensitive demand is to price changes.
Income Elasticity – How demand changes with consumer income.
Cross Elasticity – How demand for one product affects demand for another.
3. Consumer Behavior
Utility Theory – Consumers aim to maximize satisfaction (utility).
Marginal Utility – The additional satisfaction from consuming one more unit of a good.
Budget Constraints – How income affects consumption choices.
4. Production and Costs
Law of Diminishing Returns – Adding more inputs eventually yields lower output.
Fixed vs. Variable Costs – Costs that remain constant vs. those that change with production.
Economies of Scale – Lowering per-unit costs through larger production.
5. Market Structures
Perfect Competition – Many firms, homogeneous products, free entry and exit.
Monopoly – Single seller, high barriers to entry.
Oligopoly – Few dominant firms, interdependent pricing.
Monopolistic Competition – Many firms, differentiated products, some pricing power.
6. Factor Markets
Labor Market – Wages and employment decisions.
Capital Market – Interest rates and investment.
Land and Resource Allocation – How natural resources are priced and distributed.
7. Government and Microeconomics
Taxes and Subsidies – Impact on pricing and consumption.
Price Controls – Minimum wages, rent ceilings, market intervention.
Externalities – Positive or negative effects of market activities on third parties.
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