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Session 1-2
Definition and Methodology
Microeconomics - Branch of economics
that deals with the behavior of individual
economic units—consumers, firms,
workers, and investors—as well as the
markets that these units comprise.
Abstraction (Theories and Models)
Trade-offs
Equilibrium
1.1
Useful Concepts
Theories and Models
Consumers
Consumers have limited incomes, which can be spent on a
wide variety of goods and services, or saved for the future.
Workers
Workers also face constraints and make trade-offs. First,
people must decide whether and when to enter the
workforce. Second, workers face trade-offs in their choice of
employment. Finally, workers must sometimes decide how
many hours per week they wish to work, thereby trading off
labor for leisure.
Firms
Firms also face limits in terms of the kinds of products that
they can produce, and the resources available to produce
them.
Useful Concepts
• Equilibrium – A state of balance, with no
inherent tendency to change.
• If a person or an entity considers a
situation as the best attainable, under the
prevailing conditions, it implies that any
change from it is undesirable.
Useful Concepts
• Prices and Markets -
• Microeconomics describes how prices are
determined.
5000
P
680
The inverse demand curve
P
P=p(Q)
680
Q
5000
A change in quantity
P
P=p(Q)
700
680
Q
4990
5000
2.1
SUPPLY AND DEMAND
The Demand Curve
Figure 2.2
Figure 2.1
Figure 2.3