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INTRODUCTION TO MICROECONOMICS - Coggle Diagram
INTRODUCTION TO MICROECONOMICS
Definition (Economics)
Economics is a study how people use their limited resources to satisfy their unlimited needs and desire.
It is a study about scarcity, choices and opportunity cost.
Definition (Microeconomics)
The study of individual economic units in detail such as household, a firm and government.
Word 'micro' means looking closer to small units, providing and outline for choices and decision makin of an individual, a business and the public at large.
Example
Daily lives
What do I want for breakfast?
Firms
How many labourers should we employ?
Government
Shall we allocate budget for schools or clinics?
Basic Economic Concepts
Scarcity :arrow_forward: Choice :arrow_forward: Opportunity Cost
Basic Economic Problems
How to produce?
For whom to produce?
What to produce?
Demand
Definition
The ability and willingness to buy specific quantities a goods in a given period of time at a particular price.
Law of Demand
The higher the price of a product, the lower quantity demanded of that product and vice versa.
Assumptions
Tastes and preferences of consumers remain unchanged.
Consumers income remains the same.
Price of related goods (complement or substitutes) should remain unchanged.
Goods should not have any prestige value.
Determinants of Demand
Internal factors
Price of goods
Service policies and terms of payment
Profit margin
Price of goods
Depends on the cost of production
Higher the price, lower the demand
Service policies and terms of payment
Better customer service and terms of payment by credit instead of cash will increase sales
Profit Margin
A higher profit margin will lead to an increase in the price of the product and reduce its demand, vice versa.
External factors
Price of related goods
Complementary goods
Consumer income
Tastes and fashions
Population or number of buyers
Expectation about future prices
Advertisements
Festive seasons and climate
Level of taxation
Supply of money in circulation
Price of Related Goods
Affected by a chance in the price related to goods.
2 categories of related goods: substitute goods & complementary goods
Consumer's Income
When income increase, demand will increase
Goods increase in demand when income increase (normal goods)
Goods decrease in demand when income increase (interior goods)
Tastes and Fashions
When a product become more fashionable, demand will increase significantly
Population of Number of Buyers
Larger population with high rate of growth creates a greater demand
Expectation about Future Prices
The higher the expect future price, the higher current demand for the product
Advertisements
Advertised goods normally have a higher demand because of the awareness