Microeconomics and Macroeconomics Concepts

Microeconomics

• Study of individual economic units such as households, firms, and markets
• Analyzes behavior and decision-making of these units
• Examines how resources are allocated and prices are determined
• Key concepts:
  • Opportunity cost: value of next best alternative given up
  • Scarcity: fundamental economic problem of unlimited wants vs. limited resources
  • Law of diminishing marginal utility: decreasing satisfaction from consuming additional units of a good

Macroeconomics

• Study of economy as a whole, focusing on aggregates and averages
• Examines issues such as economic growth, inflation, and unemployment
• Analyzes factors affecting overall economic performance
• Key concepts:
  • Gross Domestic Product (GDP): total value of goods and services produced within a country
  • Inflation rate: percentage change in general price level
  • Unemployment rate: percentage of labor force unable to find work

Supply and Demand

• Fundamental forces driving market equilibrium
• Supply: quantity of a good or service producers are willing to sell at a given price
• Demand: quantity of a good or service consumers are willing to buy at a given price
• Key concepts:
  • Law of supply: as price increases, quantity supplied also increases
  • Law of demand: as price increases, quantity demanded decreases
  • Equilibrium: point at which supply equals demand

Market Structures

• Classification of markets based on characteristics such as number of firms, entry barriers, and product differentiation
• Key market structures:
  • Perfect competition: many firms, free entry and exit, identical products
  • Monopoly: single firm, barriers to entry, unique product
  • Monopolistic competition: many firms, free entry and exit, differentiated products
  • Oligopoly: few firms, barriers to entry, interdependent decision-making

International Trade

• Exchange of goods and services across national borders
• Benefits:
  • Comparative advantage: countries specialize in producing goods for which they have a lower opportunity cost
  • Gains from trade: increased efficiency and variety of goods available
• Key concepts:
  • Tariffs: taxes on imported goods
  • Quotas: quantitative restrictions on imported goods
  • Exchange rates: prices of one country's currency in terms of another's

Fiscal Policy

• Use of government spending and taxation to stabilize the economy
• Tools:
  • Government spending: increases aggregate demand, stimulates economic growth
  • Taxation: reduces aggregate demand, slows economic growth
• Objectives:
  • Full employment: achieving a low unemployment rate
  • Price stability: controlling inflation
  • Economic growth: promoting long-term economic expansion