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 structures3. Models to examine the market economy as an inter-related system.

SUPPLY AND DEMANDSOME TERMS TO REMEMBER:MARKET – a place where buyer and sellers interact and engage in exchange.DEMAND – reflects the consumer’s 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 producer’s 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 DEMAND1. 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 SUPPLY1. 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.