Introduction to Microeconomics: Demand

Study Notes

Introduction to Microeconomics

Microeconomics studies individual economic actors like consumers, firms, and industries.
It analyzes how these actors make decisions within markets to efficiently allocate limited resources.
It examines individual market behaviors and the interplay between different markets.

Demand

Demand is the quantity of a good or service consumers are willing and able to buy at various prices during a given time.
Demand factors include price, income, related good prices (substitutes and complements), tastes, and expectations.
The demand curve shows the price-quantity demanded relationship, holding other factors constant.
The law of demand states that quantity demanded decreases as price increases, other factors remaining constant.
A shift in the demand curve results from changes in factors other than price, like income changes or taste shifts.

Supply

Supply is the quantity of a good or service firms are willing and able to produce and sell at various prices during a given time.
Supply factors include price, input costs, technology, government regulations, and future price expectations.
The supply curve shows the price-quantity supplied relationship, with other factors unchanged.
The law of supply states that quantity supplied increases when price increases, given unchanged other factors.
A shift in the supply curve results from changes in factors besides price, such as input costs or technology.

Market Equilibrium

Market equilibrium occurs when quantity demanded equals quantity supplied.
At equilibrium, neither price nor quantity has a tendency to change.
Equilibrium price and quantity are determined by the intersection of supply and demand curves.
Shifts in supply or demand curves lead to new equilibrium price and quantity.

Elasticity

Elasticity measures the responsiveness of one variable to changes in another.
Price elasticity of demand quantifies how quantity demanded reacts to price changes.
Price elasticity of supply shows how quantity supplied changes with price.
Cross-price elasticity of demand describes how the quantity demanded of one good responds to a change in the price of a related good.
Income elasticity of demand measures the change in quantity demanded in response to changes in income.

Consumer Choice

Consumers maximize utility (satisfaction) subject to their budget constraint.
The budget constraint shows all affordable combinations of goods and services.
Indifference curves illustrate bundles that provide equal satisfaction levels.
The optimal consumption bundle is where the highest indifference curve is tangent to the budget constraint.

Production and Costs

Firms aim to maximize profits while minimizing costs.
Short-run costs comprise fixed and variable costs.
Long-run costs only include variable costs.
Cost curves (total cost, average cost, marginal cost) relate output to cost.
Economies of scale occur when long-run average costs decrease as output increases.

Market Structures

Different market structures (perfect competition, monopoly, monopolistic competition, oligopoly) affect price, output, and efficiency.
Perfect competition involves many firms, homogeneous products, free entry and exit, and price-taking behavior.
Monopoly features a single firm with significant market power.
Monopolistic competition has many firms with differentiated products.
Oligopoly comprises a few large firms.

Externalities and Public Goods

Externalities are costs or benefits imposed on third parties from producing or consuming a good.
Negative externalities (like pollution) lead to overproduction.
Positive externalities (like education) lead to underproduction.
Public goods are non-rivalrous (consumption by one doesn't prevent another) and non-excludable (difficult to prevent people from using).
Market failures occur when markets don't efficiently allocate resources.

Government Intervention

Governments intervene to address market failures, like externalities, public goods, and monopolies.
Interventions include taxes, subsidies, regulations, and public provision of goods.
Policies aim to achieve societal goals.

Description

This quiz explores key concepts in microeconomics, focusing on the demand for goods and services. It covers the factors impacting demand, the demand curve, and the law of demand. Ideal for students looking to deepen their understanding of market behavior.