Introduction to Economics: Microeconomics

Study Notes

Introduction to Economics

Economics is the social science that studies how societies allocate scarce resources to satisfy unlimited wants and needs.
It encompasses two main branches: microeconomics and macroeconomics.
Microeconomics focuses on individual agents like households and firms, while macroeconomics examines the overall performance of the economy.

Microeconomics

Supply and Demand: The interaction of supply and demand determines market prices and quantities.
- Supply represents the quantity of a good or service that producers are willing to offer at different prices, typically increasing with price.
- Demand represents the quantity of a good or service that consumers are willing to buy at different prices, typically decreasing with price.
- Market equilibrium occurs when supply equals demand.
Elasticity: Measures the responsiveness of quantity demanded or supplied to a change in price or other factors.
- Price elasticity of demand measures how much quantity demanded changes when price changes.
- Determinants and effects of elasticity are relevant in various economic policy decisions.
Market Structures: Economies have different market structures that affect price, output, and competition.
- Perfect competition (many buyers and sellers, homogenous products, free entry/exit)
- Monopolistic competition (many buyers and sellers, differentiated products, relatively easy entry/exit)
- Oligopoly (few large producers, significant interdependence, barriers to entry)
- Monopoly (single seller, unique product, significant barriers to entry)
Production Costs and Profit Maximization: Firms strive to minimize production costs and maximize profits to guide production decisions.
- Understanding cost curves (fixed, variable, total, marginal) is key.

Macroeconomics

Gross Domestic Product (GDP): A key measure of a nation's economic output.
- Represents the total market value of all final goods and services produced within a country in a certain period.
Inflation: The sustained increase in the general price level of goods and services in an economy over a period.
- Measured by various indices like the Consumer Price Index (CPI).
Unemployment: The percentage of the labor force that is actively seeking employment but unable to find work.
- Understanding the different types of unemployment (frictional, structural, cyclical) and their effects.
Economic Growth: An increase in the capacity of an economy to produce goods and services over time.
- Factors involved include capital accumulation, technological advancement, labor force growth, and institutional factors.
Fiscal Policy: Governments use taxation and spending to influence the economy.
- Expansionary fiscal policy involves increasing government spending or decreasing taxes to stimulate demand.
- Contractionary fiscal policy involves decreasing government spending or increasing taxes to reduce demand.
Monetary Policy: Central banks use interest rates and money supply to influence the economy.
- Expansionary monetary policy involves lowering interest rates or increasing the money supply to stimulate demand.
- Contractionary monetary policy involves raising interest rates or decreasing the money supply to curb inflation.
International Trade: The exchange of goods and services between countries.
- Concepts like comparative advantage, tariffs, and trade agreements.

Economic Systems

Capitalism: Resource allocation driven by markets and private ownership.
Socialism: Resource allocation driven by social ownership and central planning.
Mixed Economy: Characteristics of both capitalism and socialism.

Other significant concepts

Opportunity Cost: The value of the next best alternative foregone when making a choice.
Scarcity: The fundamental economic problem of unlimited wants and needs exceeding limited resources.
Rational Choice Theory: Individuals and firms make decisions to maximize their utility or profit, respectively.

Description

Explore the fundamental concepts of microeconomics, including supply and demand, market equilibrium, and elasticity. This quiz delves into how individual agents, like households and firms, influence market dynamics and resource allocation. Test your understanding of how these principles shape economic interactions.