Microeconomics Basics

Microeconomics

• Microeconomics analyzes individual economic actors, like consumers and businesses.
• It studies how these actors make decisions within specific markets for goods and services.
• Core concepts include supply and demand, market balance, elasticity, and market structures (e.g., perfect competition, monopolies).
• Supply and demand interact to set the price and quantity for a good or service.
• Demand represents the quantity consumers want and can afford at various prices.
• Supply reflects the quantity producers are willing to offer at different prices.
• Elasticity measures the sensitivity of one factor to changes in another.
• Price elasticity of demand quantifies how much demand changes with price shifts.
• Market structures describe different firm organizations within industries.
• Perfect competition features many firms offering identical goods, and firms are price takers.
• A monopoly has one firm selling a unique product, with the firm setting the price.
• Other structures include monopolistic competition (differentiated products, many firms) and oligopolies (a few dominant firms).

Macroeconomics

• Macroeconomics examines the entire economy.
• It focuses on overall variables like inflation, unemployment, and economic growth.
• Critical macroeconomic factors: GDP, inflation rate, unemployment rate, and interest rates.
• GDP measures total final goods and services produced within a country during a period.
• Inflation is a general rise in prices over time.
• Unemployment measures the percentage of the labor force without jobs.
• The interest rate is the cost of borrowing money.
• Key economic theories include classical, Keynesian, and monetarist approaches.
• Fiscal policy uses government spending and taxes to influence the economy.
• Monetary policy manages the money supply and credit to affect economic conditions.
• Aggregate demand represents total demand for goods and services.
• Aggregate supply represents total supply.
• Aggregate supply and demand establish the overall price levels and output in the economy.

Economic Systems

• Economic systems organize societies' production, distribution, and consumption.
• Different systems vary in government involvement and private sector participation.
• Market economies (like capitalism) use market forces (supply and demand) to allocate resources.
• Command economies (like communism) centrally plan resource allocation.
• Mixed economies (many developed countries) combine elements of market and command systems.
• Key factors affecting systems and performance include resource availability, technology, and institutional structures.

Economic Growth and Development

• Economic growth increases an economy's capacity to produce goods and services.
• It's measured by increases in real GDP per capita (considering both GDP growth and population).
• Determinants of growth include investments in physical and human capital, technological progress, and institutions promoting efficiency.
• Economic development is broader, encompassing improvements in quality of life.
• Factors include poverty reduction, improved health and education, and environmental sustainability.
• Inequality can hinder growth and development through creating less inclusive communities.

International Economics

• International economics studies economic relations between countries.
• Trade and investments are crucial elements.
• Trade theory explains international trade patterns through comparative advantage.
• Comparative advantage suggests countries specialize in goods with lower opportunity costs.
• Trade enables consumption beyond domestic production possibilities.
• Exchange rates and international finance are significant topics.
• Exchange rates define the value of one currency relative to others.
• International financial markets involve capital and currency flows.
• International institutions (IMF, World Bank) play a role in global cooperation.