Introduction to Microeconomics

Introduction to Economics

• Economics is the social science that studies how societies allocate scarce resources to satisfy unlimited wants and needs.
• It encompasses various concepts, including production, consumption, distribution, and exchange of goods and services.
• Key areas of study include microeconomics, which focuses on individual agents and markets, and macroeconomics, which analyzes the overall performance of the economy.

Microeconomics

• Microeconomics examines the behavior of individual economic agents, such as consumers and firms.
• It explores concepts like supply and demand, market structures, and firm behavior.
• Supply and demand are fundamental concepts that explain how prices are determined in markets.
• Demand represents the willingness of consumers to buy a good or service at various prices, while supply represents the willingness of producers to sell a good or service at various prices.
• Market structures, such as perfect competition, monopoly, oligopoly, and monopolistic competition, describe the nature of competition in different markets.
• Firms aim to maximize profits, a key motivational factor in microeconomics.
• Firms' production choices depend on input costs and factors like technology.

Macroeconomics

• Macroeconomics analyzes the overall performance of the economy and its aggregate behavior.
• It studies economic indicators such as GDP, inflation, unemployment, and interest rates.
• Gross Domestic Product (GDP) measures the total value of goods and services produced within a country in a specific period.
• Inflation refers to the rate of increase in the general price level of goods and services in an economy.
• Unemployment measures the percentage of the labor force that is actively seeking employment but unable to find work.
• Interest rates are the cost of borrowing money and affect consumer spending and investment decisions.

Key Economic Schools of Thought

• Classical economics: Emphasizes the self-regulating nature of the market and the importance of free markets.
• Keynesian economics: Advocates for government intervention to manage aggregate demand and stabilize the economy during recessions.
• Monetarism: Focuses on the role of money supply in inflation and economic fluctuations.
• New classical economics: Combines elements of classical and rational expectations theories.
• Behavioral economics: Incorporates psychological insights into economic decision-making.
• Institutional economics: Studies social and political institutions that shape economic behavior and outcomes.

Economic Systems

• Market economies: Resources are allocated primarily through markets, with limited government intervention.
• Command economies: Resources are allocated by a central authority, often the government.
• Mixed economies: Combines elements of both market and command economies, with varying degrees of government regulation and intervention.

Economic Growth & Development

• Economic growth refers to an increase in the production of goods and services over a period of time.
• Economic development encompasses a broader range of changes including improvements in living standards, education, health, and infrastructure.
• Factors influencing economic growth include technological advancements, human capital, and infrastructure.