Understanding Microeconomics

Microeconomics delves into individual and business decisions in allocating resources. It contrasts with macroeconomics, focusing on country-wide or global economic trends and phenomena.

Demand refers to consumer willingness to buy, while supply is what the market can offer. Equilibrium is reached when supply equals demand, determining the market price and quantity.

Elasticity measures how demand or supply changes with price. However, it also gauges responsiveness to other factors like income (income elasticity) or substitute products (cross-price elasticity).

Microeconomics emphasizes marginal analysis—decisions made based on incremental changes, not totals. Businesses use it to determine optimal production levels by equating marginal cost to marginal revenue.

Opportunity cost, a key concept, is the potential benefit lost when choosing one alternative over another. It underscores that resources are limited and every choice has an implicit cost.

Market structures range from perfect competition to monopoly. Each has different characteristics affecting prices and output. Monopolistic competition and oligopoly lie in between, with unique strategic interactions.

When market activities affect third parties, we face externalities, which can be positive or negative. They often lead to market failure, prompting government intervention to correct inefficiencies.