Microeconomics: Consumers and Firms 2017-2018
A. ADVENTURES IN MICROECONOMICS
This chapter opens with a story that conveys about the market for producing and buying coffee that excites and entices the students to dig deeper into the theory of microeconomics. Students are informed about the use of microeconomics in everyday life as well as academics through various elements and tools.
Microeconomics Microeconomics is a branch of economics that studies the specific choices made by consumers and producers. This is different from macroeconomics which is another branch that has broader sense and includes large number of producers and consumer.
Consumer’s and Producer’s Decisions Questions like which goods to buy, how much of it and for what price, among the wide variety of goods and services that the market has to offer, constitute of a consumer’s decision. Moreover, a firm also has many decisions to make, such as input used, cost of production, level of output that needs to be produced, etc.
Market Supply This section deals with different types of market, which a firm can choose to supply its output. Firstly, perfect competition includes, firms take market price as given. For example, rice and wheat market. Secondly, monopoly, where price is determined by the only firm that rules the market. Lastly, oligopoly, where a few firms act strategically and determine the price. Firms are interdependent on each other for actions.
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Microeconomics: Consumers and Firms 2017-2018
This chapter outlines the basic concept of supply and demand model. Also, it analyses how equilibrium prices and quantity are influenced by the variety of forces that affects market: namely, consumer tastes, input prices substitute goods, innovations etc.
Market and Key assumptions of Supply and Demand The specific product being bought and sold at a particular location and a particular point in time is defined as market.
Key assumptions Single market is focused; All goods in the market are identical; All the goods sold in the market sell for the same price, everyone has same information; Many producers and consumers in the market.
Demand Combined amount of a good that all consumers are willing to buy is known as demand.
Factors influencing demand Price: less price, more demand and vice-versa; Number of consumer: all else equal, more consumers result in more demand for a good; Consumer income: more income will lead to buying of more goods. However, luxury goods are bought less even if there is more income; Consumer taste: favorable taste will attract consumers to buy more goods; Price of other goods: when price of substitute good (goods that can be used in place of other) falls, consumer buys more of it and less of initial good. When price of compliment good (good that is purchased and used in combination with another good) falls, consumers will buy more of it and also the initial good.
Demand curve Relationship between the quantity of a good that consumers demand and goods price, holding all the other factors constant. Price of a good and its quantity is inversely proportional, i.e. higher price will lead to lower quantity.
Shift in demand curves When a good’s non-price factors change, there is a change in demand. This leads to shift in the demand curve entirely. Nonetheless, when the good’s price changes holding other factors constant, there is a change in quantity demanded. This results in movement along the demand curve.
Supply Combined amount of a good that all producers in a market are willing to sell is called Supply.
Factors influencing supply Price: a higher price means more supply of a good; Cost of production: lower cost implies more supply; Number of sellers: more suppliers will have more goods to supply; Seller’s outside option: substitute and compliment goods can be used for changing the quantity of supply.
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