Basic Microeconomics

By IntroBooks Team

As most of the things in the world are scarce, the allocation of
these scarce resources becomes very important. Economics,
whether micro or macro, is needed because of this scarcity.
Microeconomics deals with individuals and firms. Microeconomics
can also be termed as the study of supply and demand. It
assumes rational behavior of consumers and perfect competition
to make mathematical models. A perfectly competitive market
adjusts the prices of goods and services by itself without any
external intervention. It also makes the business feasible for all
the players. Both the supply and demand are controlled by the
price. Businesses use several microeconomic concepts to make
important decisions like whether to expand or shrink the
quantity produced, how to maximize the profit, etc. The ultimate
objective of buyers and sellers is to maximize the utility.

• Language: English
• Publisher: IntroBooks
• Release date: Nov 2, 2019
• ISBN: 9781393363897

Book preview

Basic

Microeconomics

IntroBooks #595

http://readintrobooks.com/

Copyright © 2019 IntroBooks

All rights reserved.

Preface

As most of the things in the world are scarce, the allocation of these scarce resources becomes very important. Economics, whether micro or macro, is needed because of this scarcity. Microeconomics deals with individuals and firms. Microeconomics can also be termed as the study of supply and demand. It assumes rational behavior of consumers and perfect competition to make mathematical models. A perfectly competitive market adjusts the prices of goods and services by itself without any external intervention. It also makes the business feasible for all the players. Both the supply and demand are controlled by the price. Businesses use several microeconomic concepts to make important decisions like whether to expand or shrink the quantity produced, how to maximize the profit, etc. The ultimate objective of buyers and sellers is to maximize the utility.

Summary

Microeconomics is the study of economics related to individuals, firms, companies, etc. The scarcity of resources makes its allocation very important. Demand and Supply are two major factors in microeconomics. Welfare economics and Labour economics are also part of microeconomics. In microeconomics, any two factors are studied keeping everything else constant. According to the law of demand, as the price increases, the demand decreases. According to the law of supply, as price increases the supply increases. Market equilibrium is reached when the quantity produced of a good or service become equal to the quantity supplied. The price at which this occurs is the equilibrium price.

Elasticity is another concept. It shows the responsiveness of demand and supply to the price. When the magnitude of price elasticity of demand |Ed| <1, the demand is relatively inelastic. Example – Quantity of Medicine demanded doesn’t change much with the price. If |Ed|>1, the demand is elastic. Example – the change in flight price of an