Fundamentals and Basic elements of Microeconomics.

Here’s a structured overview of the Fundamentals and Basic Elements of Microeconomics, covering key concepts and principles:

1. The Economic Problem: Scarcity and Choice

Economics exists because resources are scarce, and individuals must make choices to allocate them efficiently. This scarcity forces businesses, governments, and individuals to prioritize needs and optimize resource use.

Nature and Scope of Economics

• Positive Economics – Focuses on objective analysis, describing economic behavior without judgments (e.g., "The unemployment rate is 5%").

• Normative Economics – Involves value judgments and policy recommendations (e.g., "The government should reduce unemployment").

2. Scope of Microeconomics and Macroeconomics

• Microeconomics – Examines individual consumer and business behaviors, market structures, and price mechanisms.

• Macroeconomics – Focuses on the economy as a whole, studying national income, inflation, GDP, fiscal and monetary policies.

Central Problems in Economics

1. What to produce? – Choosing goods/services based on consumer demand.

2. How to produce? – Deciding on resource allocation and production techniques.

3. For whom to produce? – Determining how goods are distributed among different income groups.

3. Demand Schedule & Market Demand

Demand refers to the quantity of goods/services consumers are willing to buy at various prices.

Key Concepts:

• Individual vs. Market Demand – Individual demand refers to a single consumer, while market demand aggregates all consumers.

• Determinants of Demand – Consumer income, preferences, price of substitutes/complements, expectations, population.

• Law of Demand – As price decreases, quantity demanded increases (inverse relationship).

• Movements vs. Shifts in Demand Curve:

  • Movement – Change in quantity demanded due to price variation.

  • Shift – Demand shifts due to non-price factors like income or preferences.

Elasticity of Demand

• Price Elasticity – Measures sensitivity of demand to price changes.

• Income Elasticity – Changes in demand due to income variation.

• Cross Elasticity – Effect of price change in one product on another (substitutes/complements).

4. Supply Schedule & Market Supply

Supply refers to the quantity of goods/services businesses offer at different prices.

Key Concepts:

• Individual vs. Market Supply – Individual supply is for one business, while market supply aggregates all suppliers.

• Determinants of Supply – Production costs, technology, taxes, number of sellers, future expectations.

• Law of Supply – As price increases, quantity supplied increases (direct relationship).

Elasticity of Supply

• Price Elasticity – Measures responsiveness of supply to price changes.

• Factors Affecting Supply Elasticity – Production flexibility, availability of resources, storage costs.

5. Determination of Demand and Supply

Market equilibrium occurs where demand equals supply, setting the price and quantity exchanged.

Effect of Shift in Demand & Supply

• Increase in Demand → Higher price and quantity.

• Decrease in Demand → Lower price and quantity.

• Increase in Supply → Lower price, higher quantity.

• Decrease in Supply → Higher price, lower quantity.