Principles of Microeconomics

The main concern of the present paper are the basic principles of the microeconomics including the issues related to supply and demand as the main constituents of the market. According to the information provided in the third chapter to understand the main principles of microeconomics the following concepts should be taken into account: a competitive market and the price, the laws of supply and demand, the way they influence the price on the market, and how the predictions on the price and quantity can be made as far as supply and demand are concerned.

The first item necessary to learn when speaking about the microeconomics is the concept of the market. Market is the place, where goods can be bought and sold. What differs market from the competitive market is the presence of many buyers as well as many sellers, when there is no one seller capable of defining prices. The next issue discussed is demand and the law of demand. When deciding to buy a good the person has to wish to purchase it, afford it and have some definite plan of doing it. Thus, the quantity demanded can be defined. This quantity demanded can be defined according to the following law: “other things remaining the same, the higher the price of a good, the smaller is the quantity demanded” (Chapter III). It involves also the so-called substitution and income effects. The first presupposes the search of substitution for the good which prices has been raised. The latter one means that under the condition that the prices for goods rise relative to income the quantity demanded decreases, for customers can not afford them any more. To the main demand-changing factors belong the following: the prices of related goods as well as the expected future prices, income, including the expected future one, population and preferences. When the price changes the quantity demanded changes as well if all the rest remains the same.

Supply is only possible when the company has necessary resources and technology for producing goods or providing services, when it gets profit form producing them and it possesses certain plan of producing as well as selling them. The quantity supplied is the amount of goods or services possible to be produced and sold by the company at some definite price for some definite time period. There exists the law of supply that shows the way supply functions at the market: “Other things remaining the same, the higher the price of a good, the greater is the quantity supplied” (Chapter III). The main supply-changing factors are as follows: the prices of resources necessary to produce the goods as well as related goods produced and expected goods produced prices, the number of suppliers and technology.

When speaking about the demand and supply and about the way their correlate with each other it is important to mention the concept of equilibrium. When the price at the market balances the prices of sellers and buyers the equilibrium takes place. …
Posted by: Twila Damiano

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