1. What is Micro economics? Micro economics is the study of the different parts of the economy. Think of it as the function of a microscope. A microscope gets up so close that you can see the different parts of the cell. This is the same thing, but in economics. In studying micro economics we are studying the individual sectors of the economy and how they operate. In macroeconomics, on the other hand, we look at the functioning of the economy as a whole. Believe it or not, if you have been paying attention in class, we have already delved into micro economics. By studying the laws of supply and demand and circular flow we were examining how different parts of the economy worked.

2. The economy is broken up into five parts known as sectors. These parts are: 1.The Consumer 2. Business 3. Government 4. Labor 5. Agriculture In studying micro economics, we will cover all of these sectors. NOTE: These are different from our Investment Portfolio Sectors – Same Idea Though!

3. Demand Demand means the willingness and ability to pay for a good or service. Prices are the tools by which the market coordinates individual desires. (The Price System and The Invisible Hand)

4. The Law of Demand Law of demand – there is an inverse relationship between price and quantity demanded. – Quantity demanded rises as price falls, other things constant. – Quantity demanded falls as prices rise, other things constant

5. The Law Of Demand is based on two phenomena: 1.) At lower prices, existing demanders buy more 2.) At lower prices, new demanders enter the market

6. The Law of Demand What accounts for the law of demand? – People tend to substitute for goods whose price has gone up. The Demand Curve The demand curve is the graphic representation of the law of demand. The demand curve slopes downward and to the right. As the price goes up, the quantity demanded goes down.

7. A Sample Demand Curve

8. Types of Goods/Services Normal Good – as your income rises, so dose your demand for this good. Neutral Good – As income rises and falls, demand will remain relatively unchanged for this good (inelasticity). Inferior Good – As your income rises, your demand for this good decreases. Substitute Good – A good that can be replaced by another similar good. (Coke and Pepsi) Complementary good – A good that need is dependant upon the use of another good. (computers and software)

9. Shift Factors for Demand Change in consumer income Change in consumer tastes Change in the price of a substitute good Change in the price of a complementary good Change in consumers price expectations Change in the number of consumer (market size or share) ONLY PRICE CHANGES QUANTITY DEMANDED…NOT DEMAND!

10. Things To Remember When Considering A Demand Curve A demand curve had better follow the law of demand: When prices rise, quantity demanded falls; and vice versa. Horizontal axis (x) – Quantity – has a time dimension Vertical axis (y) – price – is a relative price. Quantities are of the same quality. The curve assumes everything else is held constant (cetarus paribus) Effects on PRICE changes are shown by movements along the demand curve. Effects of anything else on demand (shift factors) are shown by shifts of the entire demand curve

11. Other Things Constant (Cetaris Paribus) Other things constant places a limitation on the application of the law of demand. – All other factors that affect quantity demanded are assumed to remain constant, whether they actually remain constant or not.