Introduction to Microeconomics

• Economics is a social science that studies how individuals, businesses, governments, and societies make decisions about allocating scarce resources to satisfy their unlimited wants and needs.
• It analyzes the production, distribution, and consumption of goods and services
• It provides a framework for understanding how economies function and how to improve economic outcomes.

Microeconomics

• Microeconomics focuses on the behavior of individual economic agents, such as households, firms, and markets
• Supply and demand are fundamental concepts; supply refers to the quantity of a good or service that producers will offer at a given price, while demand represents the quantity that consumers are willing to purchase at that price
• Market equilibrium occurs where the supply and demand curves intersect, determining the market price and quantity
• Elasticity measures the responsiveness of one variable to a change in another, such as the price elasticity of demand, which indicates how much the quantity demanded changes in response to a change in price
• Market structures include perfect competition, monopoly, oligopoly, and monopolistic competition; each structure has different characteristics affecting pricing, output, and efficiency
• Cost functions include fixed, variable, total, and marginal costs, which are crucial for firms in making production decisions
• Different market failures can arise, like externalities (costs or benefits not reflected in market prices) and public goods (non-excludable and non-rivalrous), leading to inefficient resource allocation
• Governments intervene through regulations, taxes, and subsidies to correct market failures and improve economic outcomes

Macroeconomics

• Macroeconomics examines the behavior of the economy as a whole, focusing on aggregate variables such as GDP, inflation, and unemployment
• GDP (Gross Domestic Product) measures the total value of goods and services produced within a country's borders during a specific period; it is a key indicator of economic activity and growth
• Inflation refers to a sustained increase in the general price level; it erodes purchasing power and can distort economic decision-making
• Unemployment represents the percentage of the labor force that is actively seeking employment but unable to find work; it indicates the underutilization of labor resources
• Business cycles are recurring patterns of economic expansion and contraction; they consist of periods of growth (booms) and periods of decline (recessions)
• Fiscal policy involves government spending and taxation to influence the economy; it can be used to stimulate growth during recessions or to cool down an overheating economy
• Monetary policy involves central banks managing the money supply and interest rates to influence economic activity; lowering interest rates can encourage borrowing and investment, while raising rates can curb inflation
• International trade involves the exchange of goods and services between countries; it leads to specialization, increased competition, and access to a wider variety of products
• Exchange rates determine the value of one currency relative to another; they affect the prices of exports and imports and play a crucial role in international trade and finance
• Economic growth refers to the increase in the production of goods and services over time; it leads to higher living standards and improved economic well-being