Microeconomics Basics

Microeconomics

Microeconomics is the study of individual economic units such as households, firms, and markets.

Basic Concepts

• 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 make decisions based on their preferences and the available options.

Consumer Behavior

• 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.
• Consumer Equilibrium: The point at which the quantity demanded equals the quantity supplied.
• Indifference Curve: A graphical representation of different combinations of two goods that provide the same level of satisfaction.

Production and Cost

• Production Possibility Frontier (PPF): A graphical representation of the various combinations of two goods that can be produced given the available resources and technology.
• Law of Diminishing Returns: The decrease in marginal output as additional units of a variable input are added to a fixed input.
• Average Cost: The total cost divided by the quantity produced.
• Marginal Cost: The additional cost of producing one more unit of a good.

Firm Behavior

• Profit Maximization: The goal of firms to maximize their profits.
• Revenue: The income earned from the sale of a good or service.
• Marginal Revenue: The additional revenue earned from the sale of one more unit of a good.
• Perfect Competition: A market structure in which there are many firms producing a homogeneous product, and there is free entry and exit.

Market Structure

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

Microeconomics

• Microeconomics studies individual economic units such as households, firms, and markets.

Basic Concepts

• Scarcity is the fundamental economic problem of unlimited wants and needs, but limited resources.
• Opportunity Cost is the value of the next best alternative that is given up when a choice is made.
• Rational Choice is the idea that individuals make decisions based on their preferences and the available options.

Consumer Behavior

• Demand is the quantity of a good or service that consumers are willing and able to buy at a given price level.
• The Law of Demand states that there is an inverse relationship between the price of a good and the quantity demanded.
• Consumer Equilibrium occurs when the quantity demanded equals the quantity supplied.
• An Indifference Curve is a graphical representation of different combinations of two goods that provide the same level of satisfaction.

Production and Cost

• A Production Possibility Frontier (PPF) is a graphical representation of the various combinations of two goods that can be produced given the available resources and technology.
• The Law of Diminishing Returns states that there is a decrease in marginal output as additional units of a variable input are added to a fixed input.
• Average Cost is the total cost divided by the quantity produced.
• Marginal Cost is the additional cost of producing one more unit of a good.

Firm Behavior

• The goal of firms is to maximize their profits through Profit Maximization.
• Revenue is the income earned from the sale of a good or service.
• Marginal Revenue is the additional revenue earned from the sale of one more unit of a good.
• Perfect Competition is a market structure in which there are many firms producing a homogeneous product, and there is free entry and exit.

Market Structure

• A Monopoly is a market structure in which there is a single firm producing a product, and there are barriers to entry.
• Monopolistic Competition is a market structure in which there are many firms producing differentiated products, and there is free entry and exit.
• An Oligopoly is a market structure in which there are few firms producing a homogeneous or differentiated product, and there are barriers to entry.