MIC- Microeconomics Overview

Microeconomics

Introduction

Microeconomics studies how the individual parts of the economy make decisions to distribute a country's limited and scarce resources. Microeconomics provides useful tools for understanding the behavior of consumers and producers in the marketplace, along with the interrelationships between them. When studying microeconomics, you will learn about the different types of businesses and their strengths and weaknesses; the different types of businesses include sole proprietorship, partnerships and corporations. In addition, microeconomics focuses on the four different types of market structures: Monopolistic competition, oligopoly, monopoly, and perfect competition.

Microeconomics also looks at how these individual decisions affect the supply and demand for goods and services. Changes in the market often affect the entire demand or supply of a good or service, which in turn, affect the price and quantity of a good or service. Additionally, in times of crises, the government may become involved by stabilizing price through price ceilings and floors.

Lessons Objectives

In this module, students should be able to:

  1. Use a circular flow diagram to explain the real flow of goods and services, resources, and money through the economy.
  2. Compare and contrast sole proprietorships, partnerships, and corporations.
  3. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure (perfect) competition.
  4. Explain how the law of demand, the law of supply, and prices work to determine production and distribution in a market economy.

Key Terms

The following key terms will help you understand the content in this module.

  • Circular flow: The flow of goods and services in exchange for money in an economy
  • Households: Another name for consumers, the people who consume or buy goods and services.
  • Firms: Businesses who provide goods and services to the market.
  • Product market: Where businesses exchange products for money from consumers
  • Factor market: Where individuals supply their productive resources (labor, land, etc.) in exchange for income or wages
  • Revenue: Money a business makes for selling their products
  • Income: Money an individual makes for supplying their labor
  • Sole Proprietorship: A business organization owned by a single individual
  • Partnership: A business organization owned by two or more persons who agree on a specific division of responsibilities and profits
  • Corporation: A legal entity (or being) owned by individual stockholders
  • Stock: A certification of ownership in a corporation
  • Liability: The legally bound obligation to pay debts
  • Monopoly: A market structure controlled by one business
  • Oligopoly: A market structure controlled by a small number of businesses
  • Monopolistic competition: A market structure with lots of businesses selling similar products
  • Pure (Perfect) competition: A market structure with lots of businesses selling identical products
  • Barriers to entry: Any factor that makes it difficult for a new firm to enter a market
  • Product differentiation: Making a product slightly different from similar products
  • Demand: Willingness and ability to buy a good at all prices
  • Supply: The amount of goods available at all prices
  • Price floor: Minimum price above equilibrium; creates a surplus
  • Surplus: More supplied than demanded
  • Price ceiling: Maximum price below equilibrium; creates a shortage
  • Shortage: More demanded than supplied

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