Microeconomics is a branch of economics that focuses on how individuals, households, and firms make decisions to allocate their resources. It studies the fundamentals of economic activity at a smaller scale – within individual markets, where buyers and sellers interact. Some common topics covered in microeconomics include supply and demand, price elasticity, market structures such as monopolies and perfect competition, and the theory of production and costs.
1. What is the difference between microeconomics and macroeconomics?
While microeconomics focuses on the economic behavior of individuals, firms, and industries, macroeconomics looks at the economy as a whole. Macroeconomics studies broader issues such as inflation, unemployment, and national economic growth.
2. What is the law of supply and demand in microeconomics?
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The law of supply and demand is a theory describing the interaction between the sellers of a resource and the buyers for that resource. The law defines the effect of availability of a particular product and the desire (or demand) for that product has on its price. Generally, low supply and high demand increase price and vice versa.
3. What is a monopoly in terms of microeconomics?
A monopoly is a market structure characterized by a single seller selling a unique product in the market. In a monopoly, the seller has total market control and is the price maker as there are no close substitutes available for the product.
4. What is price elasticity in microeconomics?
Price elasticity is a concept in microeconomics that describes the degree of responsiveness of the quantity demanded of a good or service to its price change. Elasticity is measured in terms of the relationship between price and quantity. When a small change in price leads to a large change in quantity demanded, the product is said to be elastic, and vice versa.
5. What are the costs of production in microeconomics?
In microeconomics, the costs of production are the costs incurred by a business to produce a certain good or service. These can include fixed costs (those that do not change with the level of output such as rent) and variable costs (those that varied with the level of output such as materials).