Microeconomics 01

Abstract

Microeconomics is the branch of economics that studies the behavior of individual economic units—such as consumers, firms, and specific markets—in making choices about the allocation of scarce resources. Economics, at its core, is the social science dealing with how societies use limited resources (land, labor, capital, and entrepreneurship) to satisfy unlimited wants. This fundamental disparity gives rise to the Economic Problem: deciding what to produce, how to produce it, and for whom.

A critical part of microeconomics is the analysis of Demand and Supply and the resulting Market Equilibrium. Demand is defined as the quantity of a good consumers are willing and able to purchase at various prices, with the Law of Demand illustrating the inverse relationship between a good's price and the quantity demanded (ceteris paribus), which is graphically represented by a downward-sloping demand curve. The quantity demanded changes only with a change in the price of the good (a movement along the curve), while a change in any other factor (like income or tastes) causes a change in overall demand (a shift of the entire curve). Similarly, Supply is the quantity producers are willing and able to offer, and the Law of Supply states there is a direct relationship between price and quantity supplied, shown by an upward-sloping supply curve. Non-price factors (like technology or production costs) cause the supply curve to shift. Market Equilibrium is established at the intersection of the demand and supply curves, where the quantity demanded equals the quantity supplied, determining the stable equilibrium price and quantity. Any change in the determinants of either demand or supply will consequently shift the respective curves and lead to a new market equilibrium.