Microeconomics Basics

Demand

• Definition: The amount of a product or service that consumers are willing and able to purchase at a given price level during a given period of time.
• Determinants:
  • Price of the product
  • Income of the consumer
  • Prices of related goods
  • Tastes and preferences
  • Population and demographics
• Law of Demand: As the price of a product increases, the quantity demanded decreases, ceteris paribus (all other things being equal).
• Types of Demand:
  • Direct Demand: Demand for a product that is used directly by the consumer.
  • Indirect Demand: Demand for a product that is used as an input in the production of another product.

Supply

• Definition: The amount of a product or service that producers are willing and able to produce and sell at a given price level during a given period of time.
• Determinants:
  • Price of the product
  • Cost of production
  • Technology
  • Expectations of future prices
  • Government policies and regulations
• Law of Supply: As the price of a product increases, the quantity supplied also increases, ceteris paribus (all other things being equal).
• Types of Supply:
  • Individual Supply: The supply of a single firm or producer.
  • Market Supply: The total supply of all firms in a market.

Equilibrium

• Definition: The point at which the quantity demanded equals the quantity supplied.
• Equilibrium Price: The price at which the quantity demanded equals the quantity supplied.
• Changes in Equilibrium:
  • Shifts in demand or supply curves
  • Changes in the equilibrium price and quantity

Elasticity of Demand and Supply

• Elasticity of Demand: Measures how responsive the quantity demanded is to changes in the price or other determinants.
• Elasticity of Supply: Measures how responsive the quantity supplied is to changes in the price or other determinants.
• Types of Elasticity:
  • Price Elasticity
  • Income Elasticity
  • Cross-Price Elasticity