- Slides: 9
EOCT Review Microeconomics
Microeconomics • Refers to the decisions made by individuals and firms in society and the relationship between the two.
Microeconomics also refers to: • Demand • Supply • The Determinants of supply and demand. • Price Elasticity of demand. • Price Ceilings and price floors. • Business Organizations • Market Structures • Organized Labor • Effect of government regulation.
Demand • What people want. • Law of Demand – We want more at lower than higher prices. • Determinants of demand (Change in number of consumers, consumer incomes, consumer price expectations, and prices of related (complimentary of substitute goods)
Supply • What is available. • Law of Supply – We sell more at higher prices than lower prices. • Determinants of Supply – (change in cost of resources, technology, opportunities to profit from other products, number of sellers, and expectations of future prices.
Price Elasticity of Demand • The degree to which quantity demanded changes with price. Luxury items are said to have elastic demand. Items of necessity have an inelastic demand.
Equilibrium Point • Where quantity demanded and quantity supplied are the same. • Any price above equilibrium creates a surplus. Any price below creates a shortage.
Types of Business Organizations • Sole Proprietorships – Business owned by one person. • Partnerships – Business owned by two or more people. • Corporations – Business owned by many people.
Businesses operate in different competitive markets. • In perfect competition, buyers buy the lowest price. • In perfect monopoly – Firms are the only provider of a good and can charge any price. • Monopolistic Competition – Many firms with products that are almost the same. • Oligopoly – There are few suppliers of the same product in the market.