Economics

Economics is the field of study that helps us understand the practice of production, distribution, and final consumption of the commodities or goods and services produced by the manufacturers. Since this research paper is all about shedding light over the basics of Microeconomics, therefore we first must understand what actually Microeconomics is. Microeconomics basically deals with the models that are designed to help us understand and make sense out of the process of resource allocation through different uses, and the role played by the markets and prices that are prevalent in it. In other words, Microeconomics focuses on a much narrower picture and deals with the analysis of the market behavior of the firms and consumers depending n the variation in prices and supply and demand.

To further elaborate on Microeconomics, one must have a clear picture of the basic elements of it such as, Commodities, Prices, and Markets. Commodities are the physical objects, goods, or items that are the basic element of an economics activity in the market. Such commodities or goods possess certain attributes, features, or quantity over which they are considered or evaluated. For example, cotton is a commodity. Price is a value of a commodity that a buyer is willing to pay in exchange of the goods price is usually in monetary value. For example, the buyer agrees to pay 100 for 5kg cotton.

A market is a specific place where the goods are exchanged in return of a certain value of money. Markets can be of different kinds such as, Monopolistic market, Oligopolistic, market, or Competitive market. A market where only one firm operates alone, where three or four firms operate, or where several firms operate simultaneously are known as monopolistic, oligopolistic, and competitive market, respectively.

Basic Concepts of Microeconomics
To further get a broad view of microeconomics and its basics, we would elaborate on certain concepts that are considered to be the backbone of microeconomics. They are mentioned as follows.

Demand Curve
Demand curve clearly represents the basic behavior or decision made by the consumers in consideration of price and quantity demanded. The demand for a particular good or commodity is dependent over its price level varaition in the prices would result in the changing of quantity demanded and hence would shape the demand curve with respect to it. Demand for a particular commodity is based on the law of demand, which states that the quantity demanded of a commodity moves in the opposite direction of price while keeping all other things constant, hence this change results in the downward slope of the demand curve.

Consider an example, if a consumer wants to buy apples and different price levels are offered to him then obviously he would buy more apples when offered at lower rate and would buy less quantity of apples when offered at a higher rate. As price decreases, the quantity demanded increase, and vice-versa. This effect can be seen in the following figure.

The demand of a particular commodity might increase or decrease at the same price levels as mentioned above, which would in result shift the demand curve to the right or to the left. This shift in the demand curve is dependent on several factors that are Customer preference or need for the same product, change in the prices of the substitute products and complements, change in income, and expectations of change in price in future. So suppose these changes occur in a favorable way for a customer, then his demand curve would shift to the right as shown in the following figure.

Supply Curve
The supply of a particular commodity or good is also dependent over its price level variation in the price level would change the supply of that product. The law of supply states that the higher the price, the larger the quantity supplied while all other things are constant, hence this change results in the shape of the supply curve that is upward sloping.

Consider an example, suppose a fruit seller is selling apples. As the price of apples increase, he would increase the supply of apples as to gain more profit on them whereas when he gets to know that the price has fallen then he might not sell them at that time and would probably wait for the price to rise.

The supply of a particular product or service might increase or decrease depending on several factors such as, change in the prices of other goods, number of sellers of that product, prices of relevant inputs, technological changes, and expectations regarding future prices for that product. If these factors change in favor of the supplier, the supply curve would shift to the right as shown in the following figure.

Price Elasticity of Demand
The price elasticity of demand measures how much the quantity demanded of a good or commodity changes when its price changes. The precise definition of price elasticity of demand is the percentage change in the quantity demanded divided by the percentage change in price.

Goods vary greatly in their price elasticity or are sensitive to the change in prices. When there is a high price elasticity for a commodity, there is an elastic demand for that product. This means that the quantity demanded for that product responds sharply when price changes. For example, the price elasticity of demand for luxuries are high, when airline tickets or travel packages fall in their prices, their demand increases.

When there occurs a change in price in a certain proportion, and then the quantity demanded changes in the same proportion as the price changed, this is called the unit-elastic demand. This can be easily understood by the following figure.

When a certain percentage chagne in price results in less than the same percentage change in quantity demanded, its called price inelastic demand. For example, the price elasticity of demand is inelastic for the basic necessities such as, food, fuels, shoes, and medicines. Following is the figure for inelastic demand.

Budget Line
Budget line or budget constraint is the representation of a consumers capacity to buy certain amount of goods in a certain quantity from the income that he or she possesses. Obviously any product or commodity can be bought in exchange of a certain value of money therefore, given a specific amount of money would only result in having a specific amount of commodity that has its specific price.
For example, if a person has 30 in his pocket and he makes his budget to buy either tacos or burgers and suppose tacos cost 1 per one unit and burgers cost 3 per unit. So, the person would be able to buy 30 units of tacos and 10 units of burgers and not more than that. But yes, he can alter the number of units of both the products and can have both of them but in low quantity as to satisfy his need. The following figure would further illustrate the concept.