RINCIPLES OF DEMAND AND SUPPLY
Introduction to Microeconomics
1. Meaning of Microeconomics
Microeconomics is the branch of economics that studies how individuals, households, and
firms make decisions to allocate limited resources. It focuses on small economic units rather
than the entire economy.
It examines how consumers decide what to buy, how producers decide what to produce, and
how prices are determined in different markets.
In simple terms, microeconomics helps us understand how the forces of demand and supply
interact to set prices and quantities in the market. It also explains consumer behavior,
production costs, and market competition.
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2. Concept of Demand
Demand refers to the quantity of a good or service that consumers are willing and able to
purchase at various prices during a specific period of time.
It depends on several factors such as:
Price of the good
, Consumer income
Tastes and preferences
Prices of related goods (substitutes or complements)
Expectations of future prices
Law of Demand:
The law of demand states that other things being equal, the quantity demanded of a good falls
when its price rises, and rises when its price falls.
This means there is an inverse relationship between price and quantity demanded.
Demand Curve:
When drawn on a graph, the demand curve slopes downward from left to right, showing the
negative relationship between price and quantity demanded.
---
3. Exceptions to the Law of Demand
While the law of demand applies in most situations, there are exceptions where consumers may
buy more even when the price increases:
Introduction to Microeconomics
1. Meaning of Microeconomics
Microeconomics is the branch of economics that studies how individuals, households, and
firms make decisions to allocate limited resources. It focuses on small economic units rather
than the entire economy.
It examines how consumers decide what to buy, how producers decide what to produce, and
how prices are determined in different markets.
In simple terms, microeconomics helps us understand how the forces of demand and supply
interact to set prices and quantities in the market. It also explains consumer behavior,
production costs, and market competition.
---
2. Concept of Demand
Demand refers to the quantity of a good or service that consumers are willing and able to
purchase at various prices during a specific period of time.
It depends on several factors such as:
Price of the good
, Consumer income
Tastes and preferences
Prices of related goods (substitutes or complements)
Expectations of future prices
Law of Demand:
The law of demand states that other things being equal, the quantity demanded of a good falls
when its price rises, and rises when its price falls.
This means there is an inverse relationship between price and quantity demanded.
Demand Curve:
When drawn on a graph, the demand curve slopes downward from left to right, showing the
negative relationship between price and quantity demanded.
---
3. Exceptions to the Law of Demand
While the law of demand applies in most situations, there are exceptions where consumers may
buy more even when the price increases:
