Microeconomics and Macroeconomics: Key Concepts and Market Systems

Posted on Feb 4, 2025 in Economy

Microeconomics and Macroeconomics

Microeconomics studies the behavior of individual economic units of consumption and production. Macroeconomics studies the behavior and functioning of the economy as a whole.

Economic Principles

  • Positive Economics: Analyzing the economy as it is, dictated by economic theories.
  • Economic Legislation: Deals with rules of engagement dictated by economic theories.
  • Opportunity Cost: The value of the best option for the production of goods that is disclaimed to direct those resources to produce other goods.
  • Efficiency: Getting the maximum yield using available resources.
  • Economic Activity: Aims to satisfy human needs through the use of available resources.
  • Production: Economic activity aimed at providing society with goods and services.
  • Consumption: The company is responsible for making the goods and services available.

Economic Sectors

A homogeneous group of economic activities with common features:

  • Primary Sector: Nature-related activities.
  • Secondary Sector: Industrial activities dedicated to the transformation of nature through physical or chemical processes.
  • Tertiary Sector: Service provision activities.

Economic Systems

  • Authoritarian System:
    • Centralized decision-making.
    • Ownership of enterprises and the means of production belongs to the community, with the state being the owner.
    • The objective is the equal distribution of income and wealth.
    • The prices of goods and services are set by the state.
  • Market System:
    • Individual and free decision-making.
    • The ownership of enterprises and the means of production is private.
    • The economic goal pursued is profit.
    • Prices of goods are set in the market.
  • Mixed Systems:
    • Decisions are made in the market system but with state intervention.
    • Public ownership and private property.
    • Economic objective: companies aim for profit, while the state focuses on income and wealth distribution.

Demand and Supply

  • Demand Curve: Expresses the relationship between the quantity demanded of an asset and its price, holding other factors constant.
  • Elastic Curve: Consumers are sensitive to price changes.
  • Inelastic Curve: Consumers are insensitive to price changes.
  • Supply Curve: Expresses the relationship between the quantity supplied of a commodity and its price, holding other factors constant.
  • Market Equilibrium: Market equilibrium is achieved when supply equals demand. Companies offer exactly the amount that consumers demand at the price they are willing to pay.

Market Structures

  • Perfect Competition: A market with a high number of buyers and sellers, where no individual can influence the price of a homogeneous commodity.
    • Characteristics:
      • Freedom of entry and exit of firms.
      • Many buyers and sellers.
      • Uniform and homogeneous product.
      • All operators know all market information.
      • Economic agents are independent, and the price is set by the free play of supply and demand.
  • Imperfect Competition: A market in which a supplier or a demander has the capacity to influence the market, allowing them to vary the price or quantity of a product.
  • Monopoly: A market in which there is only one supplier and a large number of demanders for the same goods.
  • Monopsony: A market in which there is only one demander and a number of suppliers for the same goods.
  • Bilateral Monopoly: A market where there is only one supplier and only one demander.