Introduction to Microeconomics

Microeconomics studies the behavior of individual economic agents and how they interact.
It focuses on how decisions are made by households, firms, and governments in specific markets.
It provides tools to analyze the allocation of scarce resources among competing uses.
This includes choices made by consumers concerning what to buy and how much to spend, and by firms concerning their production, pricing, and employment decisions.

Economics deals with the fundamental problem of scarcity.
Resources are limited, but wants are unlimited.
Individuals and societies must make choices about how to use available resources to satisfy their desires.
This leads to trade-offs, where choosing one option necessitates giving up another.

Opportunity cost is the value of the best alternative forgone when a particular choice is made.
It represents the cost of a decision in terms of the next best possible option.
Recognizing opportunity cost is essential for rational decision-making and allocating resources effectively.

The PPF is a graphical representation of the maximum possible output combinations of two goods an economy can produce with its available resources and given technology.
It illustrates the trade-offs and potential gains from specialization and trade between firms and individuals.
Points on the PPF represent efficient production levels, while points inside the PPF represent inefficient use of resources. Points outside are currently unattainable.

Demand refers to the quantity of a good or service consumers are willing and able to buy at various prices, while supply is the quantity of a good that producers are willing and able to offer for sale at different prices.
Demand curves typically slope downward, reflecting the inverse relationship between price and quantity demanded.
Supply curves typically slope upward, reflecting the direct relationship between price and quantity supplied.
The interaction of demand and supply determines market equilibrium, where quantity demanded equals quantity supplied.

At the equilibrium price, the market clears, meaning there is no excess supply or demand.
Prices act as signals to both buyers and sellers, coordinating their actions in the market.
Changes in external factors (e.g., tastes, technology, prices of related goods) can shift the demand or supply curves, altering the equilibrium price and quantity.

Elasticity measures the responsiveness of one variable to a change in another.
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.
Price elasticity of supply measures the responsiveness of quantity supplied to a change in price.
Income elasticity of demand measures how quantity demanded changes in response to a change in consumer income.
Other types of elasticity include cross-price elasticity of demand.

Consumers try to maximize their satisfaction given their budget constraint.
They consider the prices of goods and their own preferences when making their choices.
Utility is a measure of satisfaction or happiness.
Indifference curves show combinations of goods that give a consumer the same level of satisfaction.
Budget lines denote the possible combinations of goods a consumer can afford given their income and prices.

Firms try to minimize costs and maximize profits given their production technologies.
Short-run costs are affected by fixed costs, variables costs, total costs, and marginal costs.
Long-run costs are driven by economies of scale and diseconomies of scale.
Firms will produce at a point where marginal cost equals marginal revenue (MR = MC).

In perfect competition, many buyers and sellers exist in a market, none of whom have significant market power.
Products are homogeneous and there is free entry and exit of sellers.
Firms are price takers.

A monopoly is a market structure in which a single firm controls the entire supply of a particular good or service.
Monopolies face no competition and can often charge higher prices and earn greater profits than firms in competitive environments.

Externalities are costs or benefits that affect third parties not directly involved in a transaction.
Positive externalities, such as education or vaccinations, benefit society beyond the individuals involved.
Negative externalities, such as pollution, impose costs on society beyond the individuals involved.

Public goods are non-rivalrous and non-excludable.
Examples include national defense and clean air.
The free-rider problem arises when individuals can enjoy the benefits of a public good without paying for it, and thus provision may require government intervention.

Market failures occur when markets fail to allocate resources efficiently.
This can be caused by externalities, public goods, information asymmetry, or monopolies.
Government intervention may be needed to correct market failures.