University of OEB Academic Year: 2023/2024

Department of Economic Sciences

Third Year Licence Monetary and Banking Economics

Teacher: Miss M. Khames

Lecture 03: The Microeconomics

Microeconomics is a branch of economics that focuses on individual economic agents,

such as consumers, producers, and businesses, and their interactions in the marketplace. Unlike

macroeconomics, which looks at the economy as a whole, microeconomics examines the choices

made by individuals and firms and how these decisions impact resource allocation, prices, and

market outcomes.

One of the central concepts in microeconomics is the law of supply and demand. This law

states that, all else being equal, the price of a good or service will rise when demand exceeds

supply and fall when supply exceeds demand. In other words, prices adjust to reach a point where

the quantity demanded equals the quantity supplied. Understanding this principle is crucial for

businesses and consumers alike because it affects their decision-making processes. For example,

if the price of a product rises due to increased demand, consumers may decide to buy less of that

product or search for substitutes.

Microeconomics also delves into the concept of elasticity, which measures how

responsive the quantity demanded or supplied is to changes in price. If a good is considered

highly elastic, a small change in price will lead to a significant change in the quantity demanded

or supplied. Conversely, inelastic goods show little responsiveness to price changes. This
understanding of elasticity is essential for businesses when setting prices and determining their

product's market position.

Consumer behavior is another vital aspect of microeconomics. It explores how individuals

make choices when faced with limited resources and an array of goods and services. Consumers

weigh factors such as price, income, and preferences when making decisions, and

microeconomics helps explain the underlying rationale. For instance, when a consumer's income

increases, they may choose to buy more of a luxury item, illustrating the relationship between

income and demand.

In conclusion, microeconomics plays a pivotal role in explaining how markets function

and how individual economic agents make decisions. By examining the forces of supply and

demand, elasticity, and consumer behavior, microeconomics provides valuable insights that can

be applied to various real-world scenarios, from setting prices and optimizing production to

understanding consumer choices in the marketplace. This branch of economics offers a deeper

understanding of the intricate workings of the economy at the micro level, helping individuals

and businesses make more informed decisions in their economic pursuits.

Reading Comprehension

1- How does Microeconomics differ from macroeconomics in terms of its scope?

2- What is Microeconomics?

3- What is the law of supply and demand, and why is it significant in microeconomics?

4- How do prices adjust in response to the law of supply and demand?

5- Explain the concept of elasticity and its importance in microeconomics.

6- How does the concept of elasticity relate to setting prices for products?
7- In what way does microeconomics contribute to our understanding of consumer behavior?

8- What factors influence consumer choices, according to the text?

9- Provide an example of how an increase in consumer income can affect their purchasing

decisions.

10- How does microeconomics help individuals and businesses make more informed

economic decisions in various scenarios?

Vocabulary:

Activity One: Match the terms with the appropriate definition

 Demand- Consumer Behavior – Supply – Elasticity.

1- The quantity of a good or service that producers are willing and able to offer for sale at

various prices during a specific time.

2- A measure of how responsive the quantity demanded or supplied is to changes in price.

3- The study of how individuals make choices when faced with limited resources and

various goods and services.

4- The quantity of a good or service that consumers are willing and able to purchase at

different prices during a given time period.

Activity Two: Fill in the blanks with the appropriate microeconomics terms from the word

bank provided below.

Word Bank: Elastic- Monopoly – Utility - Marginal Cost –Market Structure - Opportunity

Cost- Factors of Production - Equilibrium

supply and demand in a market.

2- _______ represents the additional cost incurred when producing one more unit of a good

or service.

3- ________ is a concept in microeconomics that relates to the satisfaction or happiness a

consumer derives from consuming a good or service.

4- ________ refers to the characteristics and organizational features of a market, such as

competition levels and the number of firms.

5- A ________ is a market structure in which a single firm dominates and sets the prices for

a particular good or service.

6- When a product's demand is very responsive to price changes, it is considered ______ .

7- The _______ include land, labor, and capital, which are essential for the production of

goods and services.

8- The _______ of choosing the next best alternative when making economic decisions is a

fundamental concept in microeconomics.