Microeconomics Basics Quiz

Definition: The branch of economics that studies individual units such as consumers, firms, and industries.
Key Concepts:
- Supply and Demand: Fundamental principles governing market transactions.
- Elasticity: Measures responsiveness of quantity demanded or supplied to changes in price.
  - Price Elasticity of Demand: % change in quantity demanded / % change in price.
  - Factors Affecting Elasticity: Availability of substitutes, necessity vs luxury, proportion of income spent, time period.
- Utility: Satisfaction or pleasure derived from consuming goods/services.
  - Marginal Utility: Additional satisfaction from consuming one more unit.
- Cost Structures:
  - Fixed Costs: Costs that do not change with the level of output.
  - Variable Costs: Costs that vary with the level of output.
- Market Structures:
  - Perfect Competition: Many firms, homogeneous products, free entry/exit.
  - Monopolistic Competition: Many firms, differentiated products.
  - Oligopoly: Few firms, interdependent pricing.
  - Monopoly: Single firm dominates the market.

Definition: The quantity of a good or service that consumers are willing and able to purchase at various prices.
Law of Demand: As the price of a good decreases, the quantity demanded increases, and vice versa, ceteris paribus.
Demand Curve:
- Graphical representation of the relationship between price and quantity demanded.
- Typically downward sloping from left to right.
Shifts in Demand: Changes that cause the demand curve to move to the left or right.
- Increase in Demand: Rightward shift, often due to factors like:
  - Increased consumer income (for normal goods)
  - Changes in consumer preferences
  - Price change of related goods (substitutes and complements)
  - Population growth
- Decrease in Demand: Leftward shift, often due to:
  - Decrease in consumer income (for normal goods)
  - Changes in consumer preferences
  - Price change of related goods
Factors Affecting Demand:
- Price: Main determinant of quantity demanded.
- Income: Higher income generally increases demand for normal goods and decreases for inferior goods.
- Tastes and Preferences: Changes can significantly impact demand.
- Expectations: Future expectations of prices can influence current demand.
- Number of Buyers: More buyers in the market typically increases demand.

Microeconomics examines individual economic units such as consumers, firms, and industries.
Central to microeconomics is the interaction of supply and demand which drives market transactions.

Supply and Demand: Essential principles that dictate market dynamics.
Elasticity: Reflects how quantity demanded or supplied changes in relation to price fluctuations.
Price Elasticity of Demand: Calculated by the percentage change in quantity demanded divided by the percentage change in price.
Determinants of Elasticity:
- Availability of substitutes affects how easily consumers can switch products.
- The nature of the good (necessity vs luxury) influences consumer responsiveness.
- The proportion of income allocated to the good can modify elasticity.
- Time period allows consumers to adjust behavior according to price changes.
Utility: Represents the satisfaction gained from consuming goods and services.
Marginal Utility: The added satisfaction from consuming an additional unit of a product.

Fixed Costs: Remain constant regardless of output levels; do not vary with production volume.
Variable Costs: Fluctuate based on output levels; increase or decrease with production changes.

Perfect Competition: Characterized by numerous firms, uniform products, and no barriers to entry or exit.
Monopolistic Competition: Consists of many firms, each offering differentiated products to attract consumers.
Oligopoly: Features a few firms whose pricing strategies are interlinked.
Monopoly: Dominated by a single firm that controls the market entirely.

Demand Definition: The amount of a good or service that consumers are willing to buy at various price points.
Law of Demand: Indicates that price decreases typically lead to increased quantity demanded, and vice versa, assuming other factors remain constant.
Demand Curve: Decreases from left to right, illustrating the inverse relationship between price and quantity demanded.

Increase in Demand: Depicted as a rightward shift in the demand curve; influenced by:
- Rising consumer income for normal goods.
- Shifts in consumer preferences towards a product.
- Price changes of related goods (both substitutes and complements).
- Growth in population leading to a larger consumer base.
Decrease in Demand: Represented as a leftward shift; triggered by:
- Declining consumer income affecting normal goods.
- Alterations in consumer preferences away from a product.
- Price changes of related goods reducing demand.

Price: Directly impacts the quantity demanded; higher prices typically decrease demand.
Income: Increased income tends to boost demand for normal goods while diminishing demand for inferior goods.
Tastes and Preferences: Shifts can lead to substantial changes in demand levels.
Expectations: Anticipated future price changes can sway current consumer buying decisions.
Number of Buyers: An increase in consumers typically elevates overall demand for products in the market.