Webster’s dictionary defines Economics as a science that evaluates the process by which
goods and services are produced, sold and bought. The textbook definition explains that
economics studies the choices that individuals, businesses, governments and society as a
whole make as they cope with scarcity and the incentives that influence those choices.
(Parkin, 2016, p. 2)
Microeconomics is a part of economics that studies individual people and individual
businesses, the choices they make and the way these choices affect the market. For
businesses, microeconomics it studies how profit-maximizing firms behave individually
and how they behave when competing against each other in markets. For people,
microeconomics studies how they behave when faced with decisions about where to spend
their budgets. (Flynn, 2011, p. 360) The three basic questions that are asked when
evaluating microeconomics are: What is produced? How is it produced? And For whom is
it produced?
Supply and Demand describe how markets work. Supply represents how much a market
can offer and the quantity that producers are willing to supply when receiving a certain
price. Demand is how much of a service or product that a consumer wants. The law of
demand states that if all other factors remain equal, the higher the price of good, the less
people will demand that good. Therefore the higher the price, the lower the quantity
demanded. Whereas the law of supply states that if all other factors remain the same, he
higher the price of a good, the greater the supply will be. This is reflected of the demand
and supply curve. The demand cure normally slopes downwards from left to right as
opposed to the supply curve, which normally slopes upward. When you graph the supply
and demand curves one can predict how much of a product consumers will demand at a
certain price. In theory, when supply and demand are equal (where the curves intersect)
this is called equilibrium. This is where the amount of goods supplied is the same as the
amount demanded. So at a given price, suppliers are selling all they have produced and
buyers are getting all they are demanding. When there is a change in price there will be a
shift in supply and/or demand.
Elasticity is a term used to describe how change in one area affects change in another.
Demand elasticity is the change in a consumers demand as price changes. On the other
hand supply elasticity it the change of quantity supplied when price changes. A product is
