Introduction to Microeconomics

• Economics is a social science examining the production, distribution, and consumption of goods and services.
• It studies choices by individuals, businesses, governments, and societies in allocating limited resources to satisfy unlimited wants and needs.
• Economics is divided into microeconomics and macroeconomics.

Microeconomics

• Microeconomics is the study of individual economic agents, including households, firms, and markets.
• It looks at how these agents make decisions and how their interactions shape prices and quantities in specific markets.
• Key areas in microeconomics are supply and demand, market structures, consumer behavior, production costs, and resource allocation.
• Supply and demand determine prices in competitive markets.
• The law of demand says that the quantity demanded decreases as price increases, while the law of supply says the quantity supplied increases as price increases.
• Market equilibrium is where the quantity demanded equals the quantity supplied.
• Market structures define the level of competition.
• Perfect competition has many buyers and sellers, homogeneous products, and free entry and exit.
• Monopoly is when a single seller dominates the market.
• Oligopoly is when a few large firms dominate the market.
• Monopolistic competition is when many firms sell differentiated products.
• Consumer behavior studies how individuals make consumption decisions based on preferences, budget constraints, and prices.
• Utility maximization is a common assumption where consumers maximize satisfaction given their constraints.
• Production costs are expenses firms incur and include fixed costs (do not vary with output) and variable costs (do).
• Resource allocation is how scarce resources are distributed.
• Efficiency is key, and economists seek ways to allocate resources to maximize social welfare.

Macroeconomics

• Macroeconomics studies the performance, structure, behavior, and decision-making of an economy as a whole.
• It focuses on aggregate variables like gross domestic product (GDP), inflation, unemployment, and economic growth.
• Key topics in macroeconomics include national income accounting, business cycles, monetary policy, fiscal policy, and international economics.
• National income accounting measures a country's overall economic activity.
• GDP measures national income, representing the total value of goods and services produced within a country during a period.
• Business cycles are economic activity fluctuations, with expansion (economic growth) and contraction (recession).
• Monetary policy is when a central bank manipulates the money supply and credit conditions to influence economic activity.
• Tools used include interest rate adjustments, reserve requirements, and open market operations to control inflation and promote economic growth.
• Fiscal policy is the use of government spending and taxation to influence economic activity.
• Governments use fiscal stimulus during recessions to boost demand and fiscal austerity during high debt to reduce borrowing.
• International economics studies interactions between countries, including trade, investment, and exchange rates.
• Trade policies, like tariffs and quotas, affect the flow of goods and services.
• Exchange rates determine the relative value of currencies.

Economic Systems

• An economic system organizes the production, distribution, and consumption of goods and services in a society.
• Key economic systems include market economies, command economies, and mixed economies.
• Market economies use decentralized decision-making by individuals and firms, and prices are determined by supply and demand.
• Command economies use centralized government decision-making, where the government controls production and sets prices.
• Mixed economies combine market and command economies, with some government intervention.

Economic Models

• Economists use models to simplify complex economic phenomena and make predictions.
• Models are based on assumptions and abstractions.
• They may be mathematical, graphical, or verbal.
• Common models include supply and demand, macroeconomic, and game theory models.
• Supply and demand models analyze price and quantity determination in markets.
• Macroeconomic models analyze economy-wide behavior.
• Game theory models analyze strategic interactions between economic agents.

Economic Indicators

• Economic indicators are statistics providing information about the economy.
• Leading indicators provide foresight on future economic activity.
• Coincident indicators reflect current economic activity.
• Lagging indicators reflect past economic activity.
• Examples include GDP growth, inflation rate, unemployment rate, consumer confidence index, and stock market indices.

Economic Goals

• Societies pursue economic goals like economic growth, full employment, price stability, and equitable income distribution.
• Economic growth is an increase in the production of goods and services over time.
• Full employment is when most people willing and able to work can find jobs.
• Price stability is when the general level of prices is relatively stable.
• Equitable income distribution is when income is distributed fairly.
• These goals may conflict, forcing policymakers to make trade-offs.

Overview of microeconomics, a branch of economics. Focuses on individual economic agents like households and firms. Examines how decisions and interactions determine prices and quantities in markets.