Microeconomics Overview and Consumer Behavior

Microeconomics Overview

• Microeconomics studies individual economic units (households, firms, industries). It analyzes how these units make decisions about allocating limited resources.
• Macroeconomics studies the economy as a whole. It examines national income, inflation, unemployment, and economic growth.
• Economy is the system organizing the production, distribution, and consumption of goods and services.
• Scarcity exists because resources are limited, while human wants are unlimited.
• Opportunity Cost is the value of the next best alternative forgone when a choice is made.
• Central Economic Problems arise from scarcity: deciding what to produce, how to produce, and for whom to produce.

Consumer Behavior

• Utility is the satisfaction or pleasure derived from consuming a good or service.
• Total Utility (TU) is the total satisfaction obtained from consuming a given quantity of a good.
• Marginal Utility (MU) is the additional satisfaction gained by consuming one more unit of a good.
• Law of Diminishing Marginal Utility states that as more units of a good are consumed, marginal utility decreases.
• Budget Line shows all possible combinations of goods a consumer can purchase with their income at prevailing prices.
• Consumer Equilibrium occurs when a consumer maximizes satisfaction given their income and prices.

Production and Costs

• Production Function shows the maximum output achievable with given inputs.
• Law of Variable Proportions describes how the marginal product of a variable input changes as it increases, first increasing, then decreasing, and finally becoming negative while a fixed input remains constant.
• Fixed Costs do not change with the level of output.
• Variable Costs change with the level of output.
• Total Cost (TC) is the sum of fixed and variable costs at a given level of output.
• Marginal Cost (MC) is the additional cost of producing one more unit of output.
• Average Cost (AC) is the cost per unit of output (Total Cost divided by the quantity of output).

Perfect Competition

• Market is a place where buyers and sellers interact to exchange goods and services.
• Perfect Competition is a market structure with many buyers and sellers, homogeneous products, free entry/exit, and perfect knowledge.
• Revenue is the income earned by a firm.
• Total Revenue (TR) is the total income earned (Price multiplied by Quantity sold).
• Average Revenue (AR) is revenue per unit of output (TR divided by Quantity sold).
• Marginal Revenue (MR) is the additional revenue earned from selling one more unit of output.
• Producer's Equilibrium in perfect competition occurs when Marginal Revenue equals Marginal Cost.

Market Equilibrium

• Market Equilibrium occurs when quantity demanded equals quantity supplied at a given price.
• Excess Demand occurs when quantity demanded exceeds quantity supplied.
• Excess Supply occurs when quantity supplied exceeds quantity demanded.
• Price Ceiling is a government-imposed maximum price.
• Price Floor is a government-imposed minimum price.

Non-Competitive Markets

• Monopoly is a market structure with one seller controlling the entire market with no close substitutes.
• Monopolistic Competition involves many sellers offering differentiated products/services with some control over price.
• Oligopoly is a market structure with a few large firms dominating the market, often with significant entry barriers.
• Cartel is a group of firms colluding to control prices and limit competition.

Explore the fundamentals of microeconomics, focusing on individual economic units and their decision-making processes regarding resource allocation. Delve into concepts such as scarcity, opportunity cost, utility, and consumer behavior, to gain a better understanding of this essential field of study.