Microeconomics Basics

Study Notes

Study of individual economic units such as households, firms, and markets
Examines how these units make decisions about the allocation of resources and the prices of goods and services

Scarcity: The fundamental economic problem of unlimited wants and needs, but limited resources
Opportunity Cost: The value of the next best alternative that is given up when a choice is made
Rational Choice: The idea that individuals and firms make decisions based on maximizing their utility or profit

Demand: The quantity of a good or service that consumers are willing and able to buy at a given price level
Law of Demand: The inverse relationship between the price of a good and the quantity demanded
Substitutes: Goods or services that can be used in place of each other
Complements: Goods or services that are used together

Production: The process of transforming inputs into outputs
Cost: The expense of producing a good or service
Fixed Cost: A cost that remains the same even if the level of production changes
Variable Cost: A cost that changes as the level of production changes
Average Cost: The total cost divided by the quantity produced
Marginal Cost: The additional cost of producing one more unit of a good or service

Perfect Competition: A market structure in which many firms produce a homogeneous product, and there is free entry and exit
Monopoly: A market structure in which a single firm produces a product, and there are barriers to entry
Monopolistic Competition: A market structure in which many firms produce differentiated products, and there is free entry and exit
Oligopoly: A market structure in which a few firms produce a product, and there are barriers to entry

Supply and Demand: The interaction between the quantity of a good or service that producers are willing to sell and the quantity that consumers are willing to buy
Equilibrium Price: The price at which the quantity supplied equals the quantity demanded
Equilibrium Quantity: The quantity traded at the equilibrium price

Study of individual economic units, including households, firms, and markets
Examines how these units make decisions about resource allocation and prices of goods and services

Scarcity: Unlimited wants and needs, but limited resources
Opportunity Cost: Value of the next best alternative given up when a choice is made
Rational Choice: Individuals and firms make decisions to maximize utility or profit

Demand: Quantity of a good or service consumers are willing and able to buy at a given price level
Law of Demand: Inverse relationship between price and quantity demanded
Substitutes: Goods or services used in place of each other
Complements: Goods or services used together

Production: Transforming inputs into outputs
Cost: Expense of producing a good or service
Fixed Cost: Cost that remains the same even if production level changes
Variable Cost: Cost that changes as production level changes
Average Cost: Total cost divided by quantity produced
Marginal Cost: Additional cost of producing one more unit of a good or service

Perfect Competition: Many firms produce a homogeneous product, with free entry and exit
Monopoly: Single firm produces a product, with barriers to entry
Monopolistic Competition: Many firms produce differentiated products, with free entry and exit
Oligopoly: Few firms produce a product, with barriers to entry

Supply and Demand: Interaction between quantity supplied and quantity demanded
Equilibrium Price: Price at which quantity supplied equals quantity demanded
Equilibrium Quantity: Quantity traded at the equilibrium price