Concepts of Microeconomics – An Introduction

Understanding the concepts of microeconomics is very important because microeconomics is the study of the economic behavior of individual units of an economy. The individual units comprise persons, households, firms or industries. Microeconomics does not explain what should happen in a market; instead, it explains what one should expect if certain conditions change.

Here we will focus on the most important concepts of microeconomics. They are:

Markets

Let’s start with the most important concept of microeconomics – Market.

Market – Concepts of Microeconomics

In layman terms, a market is a place where sellers sell products and buyers buy products. Given below are the major forms of markets along with their descriptions:

TermsDefinitionsPerfect CompetitionThere are many different firms that are
making a homogeneous product or serviceMonopolistic Competition
(Also known as
competitive market)This form of market is characterized by a
large number of independent firms
and each firm has a very
small proportion of the overall market shareOligopolyIn this form of market, there
are a small number
of firms that have more than
40% of the market shareOligopsonyIn this market, there are many
sellers and very few buyersMonopolyIn this market, there is only one
seller of the product or serviceMonopsonyA market in which there is only one buyer

Among all the concepts of microeconomics, you will find that Price Determination is also an important concept that should not be missed. Price Determination is the interaction of the free market forces of demand and supply for the establishment of the general level of price for a product or service.

Goods – Concepts of Microeconomics 

These are tangible products that meet the needs of consumers. Here is a table that gives a brief explanation of the types of goods:

Types of GoodsDescriptionNormal GoodsAn increase in income causes an increase
in demand for normal goods. So, income
is directly proportional to demand.Inferior GoodsAn increase in income causes a decrease
in demand of such kinds of goods. So, income
is inversely proportional to demand.Luxury GoodsAn increase in income causes a substantial
increase in demand of luxury goods.
So, like normal goods, luxury goods
too have the same correlationGiffen GoodsThese are inferior goods that people
consume more even if the price rises.Veblen /
Snob GoodsIn such goods, the increase in price of the
goods encourages people to buy more of them.

To remember the types of goods use the acronym : NIL – Normal, Inferior and Luxury.

 Demand & Supply – Concepts of Microeconomics

Demand and Supply are two pillars of the microeconomics and are considered to be very important concepts of microeconomics. Demand refers to how much of a product or service is desired by buyers and Supply shows how much a market can offer to the buyers.

Other Important Concepts of Microeconomics

Marginal Utility Curve – This curve shows the relation between the marginal utility obtained from consuming an additional unit of product and the quantity of the product consumed.

Consumer Demand Theory – This theory emphasizes on the relationship between consumer demand for goods/services and their prices.

Welfare Economics – Welfare economics uses microeconomic techniques to evaluate the welfare or well-being at the aggregate level.

The aforementioned concepts of microeconomics are highly important concepts and provide you with the right path for all kinds of research or study. You can also read more about other General Awareness articles which are given below. Boost up your preparation skills and be ahead of the competition.

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