MICROECONOMICS = is the branch of economics concerned

with the process of resource allocation of individual decision

units or markets and the efficiency with which resources are
allocated.
we could make predictions about the economy if we study
theories.

THEORY is an abstraction, a way of simplifying things. The real
world is a complicated place.
- Is concerned with knowing which variables are important
to the issue at hand and which are not.

CHARACTERISTICS OF MICROECONOMICS:
1. Microeconomics looks at the decision of individual units
it focuses on the choices made by individual decision units such
as households, producers and firms.
2. Microeconomics looks at how prices are determined it
is concerned with how prices are determined in various types of
market structures such as pure competition, monopoly,
monopolistic competition, and oligopoly. Microeconomics are
often called price theory.
3. Microeconomics is concerned with social welfare it also
examines the efficiency, relative desirability, and choice of
alternative methods by which resources are utilized to alleviate
scarcity. This microeconomics are welfare economics.
4. Microeconomics has a limited focus it is just a part of
the economics discipline.
5. Microeconomics develop skills:
a. Helps you develop your logical reasoning.
b. Will help you develop skill in the construction and use of
models.
c. Employs optimizing techniques that are useful for making
decisions in a variety of situations.
d. Are applicable to your personal resource allocation
decision such as your career choices or financial investments.

? THREE TYPES OF MODELS.
1. Models to explain the resource allocation or choice
decisions of individual households, producers and firms.
2. Models to explain how price and quantities exchanged
are determined in various types of market structures
3. Models to examine the market economy as an inter-
related system.

SUPPLY AND DEMAND
SOME TERMS TO REMEMBER:
MARKET a place where buyer and sellers interact and engage in
exchange.
DEMAND reflects the consumers desire for a commodity.
SUPPLY the amount of a commodity available for sale.
AGGREGATE DEMAND the totality of a group of consumer
demand.
AGGREGATE SUPPLY the totality of a group of producers supply.
DEMAND SCHEDULE the quantities consumers are willing to buy
of a good at various prices.
SUPPLY SCHEDULE the quantities producers are willing to offer
for sale at various prices.
MOVEMENT ALONG THE CURVE a change from one point to
another on the same curve.
SHIFT OF THE CURVE a change in the entire curve caused by a
change in the entire demand or supply schedule.
NON-PRICE FACTORS also known as parameters, are factors
other than price that also affect demand or supply.
DEMAND FUNCTION shows how quantity demanded is
dependent on its determinants.
SUPPLY FUNCTION shows how quantity supplied is dependent
on its determinants.
EQUILIBRIUM condition of balance or equality.

DETERMINANTS OF DEMAND
1. Price of the good itself.
2. Consumers income or Average income of consumers -
consumers tend to buy more goods and acquire more services
when their income increases.
RESPONSE TO A CHANGE IN INCOME DEPENDS ON THE TYPE OF
GOODS:
A. NORMAL GOODS= refers to a good for which quantity demand
at every price increases when income rises.
B. INFERIOR GOODS= refers to a good for which quantity demand
falls when income rises. Example: Public transportation as the
income increases, they stop riding this public mode of
transportation and instead drive their own car.
3. Consumers expectation of future prices. - When someone
expects higher prices in the future especially for basic
commodities, the tendency is to buy more of these goods today.
4. Prices of related commodities/goods or Price & availability of
related goods- changes in the prices of alternative goods such as
pork and chicken will affect the quantity of fish demanded.
SUBSTITUTE GOODS= are goods that can be used in place of other
goods. Example coffee substitutes for tea.
COMPLEMENTARY GOODS= are gods that go together.
=they are related in such a way that an increase in the
price of one good will cause a decrease in the demand for the
other good. For example: car and gasoline.
5. Consumers' tastes and preferences.
6. Population or size of market- an increase in the population
means more demand for goods and services.
7. Special influences - there are certain developments that
influence demand for certain goods and services. Heat and
humidity, for instance, contribute to the demand for air-
conditioning equipment and light clothing.

DETERMINANTS OF SUPPLY
1. CHANGE IN TECHNOLOGY - state of the art technology that uses
high-tech machines increases the quantity supply of goods which
causes the reduction of cost of production.
2. COST OF INPUTS USED OR COST OF PRODUCTION - an increase
in the price of an input or the cost of production decreases the
quantity supplied because the profitability of certain business
decreases.
3. EXPECTATION OF FUTURE PRICE - when producers expect
higher prices in the future commodities, the tendency is to keep
their goods and release them when the price rises.
4. CHANGE IS THE PRICE OF RELATED GOODS
5. GOVERNMENT REGULATION AND TAXES -it is expected that
taxes imposed by the government increases cost of production
which in turn discourages production because it reduces
producers' earnings and will translate to lower supply in the
market.
6. GOVERNMENT SUBSIDIES - or the financial aids/assistance
given by the government reduces cost of production which
encourages more supply.
7. NUMBER OF FIRMS IN THE MARKET OR NUMBER OF SUPPLIERS.