Introduction to Microeconomics
Microeconomics is the branch of economics that focuses on the behavior of
individuals and firms in making decisions regarding the allocation of limited
resources. It examines how these decisions affect the supply and demand for goods
and services, which determines prices, and how prices, in turn, allocate scarce
resources among alternative uses.
Basic Economic Concepts
Scarcity:
- Scarcity refers to the fundamental economic problem of having limited resources
to meet unlimited wants and needs. Because resources (like time, money, raw
materials) are finite, individuals and societies must make choices about how to
allocate them efficiently.
Choice:
- Given scarcity, choice is essential. Economic agents (individuals, firms,
governments) must decide which needs and wants to satisfy and which to forego.
These choices involve trade-offs, as opting for one alternative usually means giving
up another.
Opportunity Cost:
- Opportunity cost is the value of the next best alternative that is forgone when a
choice is made. It represents the benefits that could have been obtained by
choosing the next best alternative. Understanding opportunity cost is crucial for
making informed decisions.
Supply and Demand
Demand:
- Demand is the quantity of a good or service that consumers are willing and able to
purchase at various prices during a specific period. The law of demand states that,
all else being equal, as the price of a good decreases, the quantity demanded
increases, and vice versa. This relationship is typically represented by a downward-
Microeconomics is the branch of economics that focuses on the behavior of
individuals and firms in making decisions regarding the allocation of limited
resources. It examines how these decisions affect the supply and demand for goods
and services, which determines prices, and how prices, in turn, allocate scarce
resources among alternative uses.
Basic Economic Concepts
Scarcity:
- Scarcity refers to the fundamental economic problem of having limited resources
to meet unlimited wants and needs. Because resources (like time, money, raw
materials) are finite, individuals and societies must make choices about how to
allocate them efficiently.
Choice:
- Given scarcity, choice is essential. Economic agents (individuals, firms,
governments) must decide which needs and wants to satisfy and which to forego.
These choices involve trade-offs, as opting for one alternative usually means giving
up another.
Opportunity Cost:
- Opportunity cost is the value of the next best alternative that is forgone when a
choice is made. It represents the benefits that could have been obtained by
choosing the next best alternative. Understanding opportunity cost is crucial for
making informed decisions.
Supply and Demand
Demand:
- Demand is the quantity of a good or service that consumers are willing and able to
purchase at various prices during a specific period. The law of demand states that,
all else being equal, as the price of a good decreases, the quantity demanded
increases, and vice versa. This relationship is typically represented by a downward-
