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Principles of Microeconomics
Economics > Principles of Microeconomics
Table of Contents Abstract Keywords Overview Application Conclusion Terms & Concepts Bibliography Suggested Reading
attempt to find some middle ground in problem solving. The economic problem arises due to resource scarcity and it prompts individuals to make rational choices from amongst all the alternative solutions. Each and every choice involves a sacrifice because it is very difficult, if not impossible, to avoid tradeoffs. The value of the foregone alternative is, by definition, an opportunity cost. In essence, finding solutions to the economic problem of scarcity involves minimizing opportunity costs. Tradeoffs sometimes take the form of sacrifices that are linear in their relationship, which translate into the correspondence of a benefit with some given or constant amount of cost. However, economists tend to view the equation as one that involves increasing amounts of cost taking the form of a curvilinear relationship. Whether opportunity costs are constant or increasing their illustration is most effective when one attempts to consider all the possible choice combinations. A study of economics introduces students to many models, some of which focus on consumers and others on producers. It is best to think of graphs and models as tools that simplify reality. With a view toward a nations ability to produce two items, say goods X and Y, there are numerous combinations of X and Y possible but the production of more X essentially translates into the production of less Y and vice versa.

Abstract
Economics is a subject that provides guidance on how to reconcile unlimited wants and limited resources. In general, it involves applying the concept of tradeoffs within a context where decisions occur through marginal analysis. As they engage themselves in this framework, students will encounter questions regarding the content, purposes, and processes of production in a marketbased economy. Some will find answers to those questions as they ponder models of demand and supply. Those models are merely tools with which we can simplify reality and attain a better understanding of the nature of demand and supply. Readers will find discussions on how their purchases are sensitive to income, satisfaction, and prices. They will also learn how their employments generate revenue and profits while their employers respond to consumer wants and needs, seize or miss opportunities, and deal with market constraints. In addition, readers will gain additional insights into the relevance of microeconomics to areas such as labor markets, government regulations, market failures, public goods, and international trade.

Applications
Economics, in general, involves applying the opportunity cost concept to decisions made at the margin. In other words, how a change in one variable results in a change in another variable. As an introduction to the orientation of economics toward marginal analysis, the production possibilities frontier is a model that portrays all those combinations that a countrys entire economy can produce. It is a macroeconomic concept, which effectively conveys the interdependencies among scarcity, choices, and tradeoffs. Nonetheless, this essay is on microeconomics. The difference between those economic divisions resides in their scope. Macroeconomics is a study of economics using models of the whole economy whereas microeconomics is a study of the behaviors of consumers and producers as they interact in models we can refer to as a market.

Overview
We can think of economics as a study of reconciliations between unlimited wants and limited resources. Reconciliation is an

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Principals of Microeconomics

Essay by Steven R. Hoagland, Ph.D.

Keywords
Consumer Equilibrium Demand Demand Schedule Elasticity Equilibrium Income Law of Demand Law of Supply Marginal analysis Marginal Revenue Marginal Utility Market Failure Market Price Controls Producers Profits Public Goods Quantity Demanded Quantity Supplied Resource Market Revenue Satisfaction Supply Supply Schedule

The fourth and last assumption is that an exchange between a buyer and a seller yields benefits and/or costs for them only thereby omitting or ignoring the private exchanges relevance to larger society. A theme in economics is that individuals pursuing their own self interests promote societal betterment. Problems unrelated to scarcity arise in the marketplace when any of the last three assumptions become unrealistic or fail to hold true. Policy analysts and economists refer to that situation as a market failure. Its occurrence may establish a rationale for governmental intervention including the formation and the implementation of public policies; market failure will be revisited towards the end of this essay. A call for governmental policies or interventions suggests that something should occur in order to alleviate a problem. That call would fit the classification of normative economics, which is one of two types of economic analysis. The other type is positive economics which occurs when analysts deal strictly with data or facts centering their attention on whether that information is accurate. For example, individuals are more likely to agree on matters regarding the accuracy of data than they are on matters regarding what ought to occur in response to their interpretations of the data. In sum, differences exist in the content of a statement containing the word is versus others containing the word ought or should. Macroeconomics is more normative than microeconomics due primarily to its orientation toward policies promoting economic growth, employment, and price stability. Students will receive information on a variety of distinctions, some more subtle than other, and concepts in an economics course. The fallacy of composition concept is one. It occurs when an analyst is errant in forming the conclusion that what is true for an individual is also true for a group. In addition, there is a distinction between correlation and causation. Economic theory and models utilize causation in the sense that a change in an independent variable causes a change in a dependent variable; for example, many economists agree that consumers demand for an item causes firms to supply it. Analysts define correlation as the presence of a statistical association between variables in the absence of a theoretical basis that specifies a change in one variable causes a change in another; for example, studies show that the number of babies born under a full moon is statistically and significantly higher than a new moon. Yet we are confident that one does not cause the other because the moon is always present regardless of its illumination phase. The aforementioned set of clarifications, distinctions, and assumptions provide a foundation with which readers can form a better, yet terse, understanding of the way economists view the world. In the exposition ahead, readers will also gain a better sense of microeconomic theory and they will receive suggestions that purport to reinforce their learning. This condensed essay of microeconomics may require readers to consult textbooks and other sources for additional details, examples, and cases due to their deliberate omission for the sake of brevity. The remainder of this essay represents an attempt to apply the world view as introduced above.
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Foundations of Microeconomics Students in economics courses may find these three questions in their textbooks and possibly their exams: What will be produced? For whom will it produced? How will it be produced? Furthermore, studies in microeconomics usually begin by acknowledging a set of assumptions. First and foremost is the ceteris paribus (translation means all else is held constant) assumption. The second assumption is that consumers and producers behave as rational agents who have access to full, perfect information relevant to their decisions. Another assumption is that those agents engage in transactions through which no individual or group brings an inordinate amount of influence to an exchange decision.

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Principals of Microeconomics

Essay by Steven R. Hoagland, Ph.D.

The foundation of economics emphasizes consumers and demand as integral components. With regard to the consumer or demand side, students learn very early in their coursework that an inverse relationship exists between price and quantity demanded in accordance with the Law of Demand. Relatively speaking, smaller amounts are in demand at higher prices and vice versa. On the producer or supply side, they learn that a positive relationship exists between price and quantity supplied according to the Law of Supply. Demand & Supply Models Models contain a set of relationships and those relationships use lines and curves for illustrative purposes. However, graphs are a known stumbling block for many students so their omission from this essay serves to expedite learning. Though this author attempts to describe what an economics student might see on a graph, there are points within this essay when students will benefit by referring to graphs in an economics textbook; those by Arnold (2005), McConnell & Brue (2008), Guell (2007) and other economists will suffice. When the need arises, readers are encouraged to consult those sources as they read through the pages of this essay. All said, when viewing a two-dimensional graph showing the demand and supply curves in the market for any given item, viewers would notice that its price appears on the vertical axis and its quantity is appears on the horizontal axis. Equilibrium Equilibrium price and quantity occur where quantity demanded equals quantity supplied or where the downward-sloping demand curve intersects the upward sloping supply curve. Furthermore, on the one hand, a surplus occurs at a price above equilibrium. It is the result of the quantity supplied being greater than the quantity demanded. On the other hand, a shortage occurs at a price below equilibrium. It results from the quantity demanded exceeding the quantity supplied. In order to move price and the situation toward equilibrium, two forms of movement may occur on the graph: A movement along the curve and a shift in the curve. Students frequently confuse those two forms. In order to keep them clear, students need to remember that a change in price initiates movement along the curve whereas a change in a determinant initiates a shift in the curve. In addition, the curve illustrates the relationship between the axis variables thus any change in them will result in movement along the curve. An equilibrium point is static at one instance, but it is also dynamic in nature by virtue of a curve shift that results in a different intersection of the demand and supply curve. New intersections and new equilibrium prices and quantities often result from any inward or outward curve shift. The demand curve will shift in accordance with a change in a determinant and so will the supply curve. In the pages ahead, readers will gain valuable insights into studying microeconomic concepts and learning how to apply them successfully. Curve Shifts Five determinants exist each for demand and for supply and any change in them will prompt the curve to shift. Increases

or decreases in demand or supply occur in accordance with a change in a determinant. A rightward, outward, or upward shift in the demand curve is an increase in demand whereas an opposite shift is a decrease in demand. By extension, an increase (decrease) in demand means consumers will purchase a larger (smaller) quantity of an item at any given price. A rightward, downward, or outward shift in the supply curve is as an increase in supply whereas an opposite shift is a decrease in supply. Likewise, an increase (decrease) in supply means producers will supply a larger (smaller) quantity of an item at any given price. In contrast to curve shifts, any movement along a demand curve or a supply curve is respectively a change in quantity demanded or quantity supplied to which there is a corresponding change in price. The list of five determinants for demand and those for supply is as follows: Curve Shifters: The Determinants of Demand and Supply Demand Consumer income Population or number of buyers Consumer tastes and preferences Prices of related goods Expected prices Demand & Supply Schedules Correspondence between prices and quantities is revealed through demand and supply schedules. Construction of these schedules occurs at two levels of aggregation. Compilations of a market-level demand schedule and supply schedule originate with individual-level schedules. All individuals that buy or sell an item constitute the market for that item. Individual demand schedules represent the quantities each consumer is are willing and able to purchase at each price. The summation of quantities from those individual demand schedules across each price becomes the market demand schedule. In comparison, market supply schedules represent the sum of quantities that individual producers are willing and able to sell at each price as long as the market price makes it is feasible for them to do so. Origins & Extensions of Demand: Consumers Income, Satisfaction, & Sensitivities Marginal Utility In terms of those individual-level demand schedules, the ability to purchase an item is a function of a consumers income and the willingness to purchase is a function of the satisfaction that originates from the items consumption. In other words, consumers maximize their utility subject to their budget constraints. Utility is another word for the satisfaction an individual receives when consuming the item. Marginal utility then, by definition, is the additional unit of satisfaction from consuming an additional amount of the item. However, marginal utility increases
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Supply Prices of alternative outputs Number of sellers Technology Resource prices Expected prices

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Principals of Microeconomics

Essay by Steven R. Hoagland, Ph.D.

but it becomes smaller with additional amounts until a point is reached at which it is zero. Afterwards, marginal utility then becomes negative and it decreases at an increasing rate as a consumer begins to regret overindulgence. This pattern illustrates the diminishing marginal utility concept. One example of this concept is how the feeding frenzy that accompanies a buffetstyle meal often results in regrets as the diner attempts to get the most out of each dollar spent. Income constraints, marginal utility, and item prices jointly influence a consumers purchase plans. Income and item price are primary factors in determining how much the consumer will purchase. With a simplifying assumption that only two items are available for purchase, it is useful to ponder for a moment what combination of them is attainable for a given amount of income and is desirable for achieving an equal amount of utility. Consumer equilibrium is, by definition, a point at which the marginal utility per dollar spent is equal across all items under consideration. Consequently, item prices are an important element of demand. Elasticity Consumer sensitivity to price changes may be more important and worthy of elaboration at this juncture. The price elasticity of demand allows us to determine precisely in percentage terms how purchases respond to changes in price. Calculations of the elasticity coefficient involve division of the percentage change in quantity demanded by the percentage change in price. Percent change is the observed difference between two points, namely the starting point and the endpoint, divided by the value at the starting point. In the broadest sense, we can think about and talk about elasticity of a specific item at its extremes along a demand spectrum. The demand for an item is either elastic, inelastic, or unitary elastic when the respective coefficient as an absolute term is greater than one, less than one, or equal to one. Guell (2007, p. 41) summarizes a few studies on the price elasticity of demand for gasoline as follows: A 10 percent increase in its price will result in a decrease of less than 3 percent in quantities purchased. This result tells us that the price elasticity of demand coefficient, in absolute terms, is 0.03. Furthermore, omission of the negative sign is appropriate because we know there is an inverse relationship between price and quantity demanded. Moreover, price elasticities are a function of a few factors. Elasticity depends on a set of factors known as the determinants of elasticity. First, it depends on how much time consumers have to adjust to a price change; for example, the amount of gasoline in vehicles tank and the remoteness of their geographic location jointly influence whether they can afford to shop for cheaper gasoline. Second, elasticity is also determined by the number and relative availability of items considered to be viable alternatives or substitutes for any given item. Third, the set includes whether an item is something that a consumer needs and wants (a necessity like food, clothing,

or shelter) or something that a consumer wants but perhaps doesnt need (a luxury like jewelry, cruises, or newest electronic gadgets). The fourth factor is the portion of the consumers budget spent on the item. The coefficient of elasticity is different than, but has some relation to, the slope of a straight line. The slope formula calls for dividing the rise by the run or, in other words, the change in the vertical direction by the associated change in the horizontal direction. Another important distinction between elasticity and slope is that the slope is the same along a straight line at any given point on the line, but its elasticity varies. Conversely, the slope varies along a curved line at any point on the line, but its elasticity is the same. Three regions of elasticity exist along the demand line. The upper segment of the line is where demand is elastic. The lower segment is where it is inelastic. The segment in the middle is where demand is unitary elastic. Because price elasticity of demand describes how sensitive consumer purchases are in relation to changes in price, those segments serve as reminders that consumers are more sensitive to changes in price for high-priced items than they are for low-priced items. The relevance of these regions to firms selling items appears near the end of this section, but we turn our attention away from price elasticity for now considering two other demand elasticity concepts. Demand Coefficients Some instructors spend a considerable amount of time with their students comparing apples to oranges. Those comparisons are highly appropriate when examining the cross elasticity of demand concept. One might begin by asking the question: What happens to the purchases of oranges when there is an increase in the price of apples? In more precise terms, we need to attach the word percentage to the changes in price and in quantity. Coefficients for cross elasticity of demand will reveal whether consumers switch between apples and oranges and/or whether they eat them in some combination. These fruits are likely to be substitutes, but it is possible that some consume them in combinations as complements; an example of the latter would be hot dogs and hot dog buns. If the coefficient for the cross elasticity of demand is a positive number, we can conclude with some certainty that apples and oranges are indeed substitutes; for instance, the percentage increases in price and in quantity move in the same direction. On the other hand, if the coefficient is a negative number, we can be certain that they are complements; for instance, the percentage increases move in opposite directions. We can also ascertain whether an apple, an orange, or some other item is a normal good or an inferior good. Examinations of the percentage change in item purchase quantities with respect to the percentage change in consumer income will reveal whether the income elasticity of demand coefficient is positive or negative. If the coefficient is positive, then we can conclude that the item is a normal good; for example, an increase in income may generate an increase in apple consumption. In other words, the
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Principals of Microeconomics

Essay by Steven R. Hoagland, Ph.D.

normal case is that higher incomes generate additional purchases and larger quantities. If it is negative, then we can conclude that the apple is an inferior good. Price Elasticity These three elasticities of demand are important considerations for both consumers and producers, but price elasticity of demand is probably the most relevant to a sellers decision with regard to prices. As one might guess, most firms would prefer to sell only those items for which demand is inelastic. Consequently, firm revenue, which by definition is the mathematical product of price times quantity sold, from those sales would increase in concert with price rises but only up to a point. As prices move higher along the demand curve and begin to enter the upper region, consumers become more sensitive to price changes and then they begin to reduce their purchases of the item. Purchase quantities fall faster than prices rise resulting in decreases in a consumers total expenditures and a firms total revenues. Unabated price increases or decreases eventually move past the point at which demand is unitary elastic (for instance, where the price elasticity of demand coefficient in absolute terms is exactly equal to 1.00). The total revenue test directs attention to the danger of constant increases in an items price and to the appeal of constant decreases in an items price. In brief, upward movements in price through the middle region of the demand line tend to decrease sellers total revenues and consumers total expenditures whereas downward movements tend to increase them. The next section diverts attention away from consumers and the demand side of the model toward producers and the supply of the model. Origins & Extensions of Supply: Producers Revenue, Profits, & Constraints Most firms face constraints including competition, market price, and cost functions. The relationship between market prices and producer costs is critical. It influences whether the production of an item will occur at all and in an efficient and profitable manner. Business owners expect to earn profits and their firms will incur a variety of costs in their production of goods and services. Total costs are the sum of fixed and variable costs. Fixed costs are those that exist even without any production. Furthermore, they are constant as they do not vary with the scale of production. Some examples of fixed costs include monthly installments paid for machinery, buildings, and land. Variable costs are those that vary with production. Some examples of variable costs include wages, materials, and supplies. The allocation of costs across larger scales of production results in a variety of cost curve shapes. Graphs depicting these functions show cost on the vertical axis and quantity on the horizontal axis. Average total cost and average variable cost form important U-shaped curves. Their calculation involves dividing them by the production quantity. The lowest points on those curves are significant. At those points is where the marginal cost curve, which is J-shaped, intersects them. Marginal cost is the change in total costs that arise from producing one additional unit.

As firms produce and sell items, they receive a price for each one sold. Total revenue is the mathematical product of price times the quantity sold at each price. Marginal revenue is the change in total revenue that arises from selling one additional unit. A key relationship exists where marginal revenue equals marginal cost and where these two curves intersect. That intersection determines the profit-maximizing amount of output. Most, if not all, firms attempt to produce that amount because of their profitmaximizing behaviors. Rules of Production Two rules of production determine whether a firm will continue its operation as a viable economic entity. First, they must produce at the profit maximizing output. Second, they must receive a price that is equal to or greater than average variable cost. Moreover, the price at which an item sells must cover average variable costs and it should cover average fixed costs. In other words, firms must cover their variable inputs, labor costs for instance, in the near term and make payments on their plants and machinery as part of their operations. Moreover, they must operate at or above the shut-down point, which is where the marginal cost curve intersects the average variable cost curve and at the latters lowest point. In essence, firms will only supply a good or service over time if the items price is above the shut down point. Another key reference point is the break-even point. It occurs where the marginal cost curve intersects the average total cost curve and at the latters lowest point. The break-even point also marks the location at which those costs are equal and the firm earns a normal profit. The term may be misleading to some as it suggests the absence of profit; it is noteworthy that a major difference exists here between accounting and economics. Profits are part of the cost of doing business given the opportunity cost concept, which is the value the owner attaches to the best foregone alternative. In essence, the firm owner expects to earn a specific minimum level of profit in order to remain in the current business. Therefore, in order to remain in the business, a firm owner or an entrepreneur will receive a rate of profit considered normal for the market in which he or she conducts business operations. A real need exists to sell items at a market price that covers average total costs. Otherwise, the owner will consider producing other items, operations, and markets whenever exit and entry are feasible. Market Structure Depending on competitiveness and structures of the markets in which they operate, some firms can influence the market price and others merely accept the market price for their outputs. Market structure reflects the firms ability to make the price or to take the price. Structures at the extreme ends of a continuum refer to the presence or the absence of competition in a market for a specific output or item. The book ends of that continuum are perfect competition and monopoly or imperfect competition. Two other market structures exist between those ends namely monopolistic competition and oligopoly, but student comprehenPage 5

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Principals of Microeconomics

Essay by Steven R. Hoagland, Ph.D.

sion is highly likely when thinking only in terms of the structural extremes for now. One way to differentiate between those structural ends is to examine price in relation to marginal revenue as it appears in a table or a graph. Price is equal to marginal revenue in competitive market structures and it is greater than marginal revenue in monopolistic market structures. Though graphs can become quite confusing with each new addition of a line or curve, keep in mind that the marginal revenue line is horizontal in perfectly competitive market structures and it is downward sloping in monopolistic structures. In addition to whether firms are price makers or price takers, market structure descriptors often include the number of sellers and buyers and the ease at which firms can enter or exit a market, and the level of profit. One example of product produced in a perfectly competitive market structure is agriculture. In this instance, there are numerous buyers and sellers of an agricultural product such as corn. Consequently, corn farmers take the price dictated by the market and almost anyone can obtain enough resources to grow corn. An example of a product produced in a monopolistic market structure is a computer operating system. In this instance, there are numerous buyers of the system but only one seller. Consequently, system developers make the price, as they are the only producer, and virtually no one can obtain the resources needed to develop the operating systems software. Furthermore, monopolists produce lower quantities than perfect competitors and they charge higher prices as a result. Moreover, those prices are much higher than the break-even point, which means monopolists and other imperfectly competitive firms earn profits greater than the normal level. Economic profit results when prices are higher than average total cost, which usually invites entry into the market. However, entry into the market for software is virtually impossible for a producer mostly due to legal constraints such as licenses and patents. If firm entry into a market is viable, then it is likely that an increase in supply will result; forcing prices down toward and possibly lower than the normal profit level. That erosion of profits effectively induces firm exit; decreasing supply, increasing price, and generating higher profits, etc. At this point, we shift our attention toward other applications of microeconomics beginning with regulations designed to infuse competition into non-competitive situations and market environments. Other Applications: Antitrust, International Trade, Resource Markets, & Failures Several antitrust laws exist for controlling economic behaviors and monopolistic inclinations. They deserve brief mention here in an effort to provide a comprehensive view regarding the applicability of microeconomics to a number of areas. For instance, an industrial organization course expands upon topics such as structure, conduct, and performance, which are instrumental in examining potential market power when firms propose to merge. An international trade course, which spans microeconomics and macroeconomics and integrates normal and positive econom-

ics, examines policies that affect the prices and the quantities of items on a global scale and it expands upon the production possibilities frontier and opportunity costs. As we move toward conclusion, this last section of the essay provides a foundation for further and deeper inquiry into those areas. Resource Markets Up to this point, the essay emphasizes product markets along with the demand and supply model and its respective variables and relationships. As we move into the final pages, attention moves away from product markets toward market failures and resource markets. Resource markets, by definition, are where the factors of production such as land, labor, and capital are available for employment in the production of goods and services. Payments for those factors are as follows: Land receives rent; labor receives wages; and capital receives interest. Labor receives payments derived naturally from the demand for goods and services or artificially from the specifications by organizations or legislation. Federal, state, and local governments may create a labor market wage rate through passage of minimum wage laws. Many economists believe those laws raise wages above the market equilibrium point thereby generating a surplus of labor, which translates into unemployment for some workers, or reducing the number of hours of work for others. Labor unions also can dictate what wage rate its members will receive in payment for their services. In short, they hold the capacity to restrict the supply of labor through training, certification, and other types of programs, but argue that those programs instill worker quality and productivity and therefore boost the demand for unionized labor. These programs effectively create barriers to entry in terms of the labor market, but such barriers also exist in the product market as described earlier in this essay. Market Failure By way of a review, entry barriers and economic profit suggest the presence of market power. They may also represent the existence of an inordinate amount of influence in the marketplace that tends to favor one party over another in the exchange of products. That influence means that there is a violation of one or more of assumptions listed earlier in this essay. Economists contend that markets are failing when they exhibit characteristics contrary to that set of assumptions. In response to a market failure, government can intervene in a number of ways including its implementation of price controls. Those controls are of two types namely price ceilings and price floors. In an effort to protect an industry subject to intense competition such as dairy farming, a price floor prevents the price from falling below a specified amount; for example, a minimum price for a gallon of milk or a pound of cheese. In an effort to emulate a competitive situation, a price ceiling will prevent the price from rising above a specific amount; for example, the rate for a unit of electricity or natural gas. A market failure can also prompt governmental actions to protect the physical environment. Market systems also fail when a third party suffers costs imposed by an exchange between two parties,
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Principals of Microeconomics

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which by definition is a negative externality. By the same token, a market failure occurs when a third party receives benefits in the absence of a direct cost, which by definition is a positive externality; in such a case, an imposition of a tax on beneficiaries is a possibility. Obviously, a more serious problem exists regarding the former. At any rate, externalities provide a rationale for governmental intervention in a market-based economy. Public Goods Sometimes the provision of goods and services is most appropriate for delivery through government agencies as opposed to private firms. For instance, public safety services like police and fire protection and national defense are available to consumers regardless of their ability to pay. Furthermore, it is impractical to exclude some citizens from receiving the benefits of defense or protection though they may not pay directly for the services. Moreover, one persons consumption of those services does not detract from anothers consumption. Public goods exhibit those non-exclusionary and non-rival characteristics, which set them apart from private types of goods and services. In a free-enterprise market-based system, for example, the price for a good or service typically excludes those who do not pay for it.

Law of Supply: Specifies the direct or positive relationship that exists between an items demand quantity and its price; quantity and price move in the same direction. Marginal Revenue: The contribution to total revenue from the sale of one additional item. Marginal Utility: The additional satisfaction an individual receives from the consumption of one additional amount of an item. Market: A virtual space where consumers and producers interact while exchanging a specific item in accordance with their demand and supply schedules. Market Failure: The results stemming from imperfect or unavailable information for consumer and producer decisions; from an individual or group hold and bring a disproportionate amount of influence into a market transaction; and/or from an imposition of costs on or harm to third parties and those outside the exchange or transaction. Price Controls: Prevent prices from rising above or falling below a specific dollar amount. Producers: Firms that supply or provide goods or services desired by consumers. Quantity Demanded: The amount of goods or services that consumers desire at given prices. Quantity Supplied: The amount of goods or services that suppliers are willing and able to produce at given prices. Public Goods: A good or service for which exclusion from nonpayment is unlikely and for which consumption among individuals is independent or without rivalry; deliveries and provisions are usually accomplished through governmental agencies or nonprofit organizations. Resource Market: Consists of the demand for and the supply of labor, land, capital and their equilibrium respective payments in the form of wages, rent, and interest. Revenue: The proceeds from the sale of an item; the mathematical product of quantity of item sold times the price of item. Supply: The amount of a good or service an individual producer or a group of producers will provide at a given price. Supply Schedule: The actual quantities that producers are willing and able to purchase at various prices.

Conclusion
As the reader can see, microeconomics covers a lot of ground given its focus on markets and the integral roles of producers, consumers, and organizations. In conclusion, this essay attempts to convey a vast array of concepts, models, and views that undergraduate students will encounter in a study of microeconomics. In closing, this essay opens the possibility of guiding readers toward deeper inquiries into a broad field and it aims to prepare them for that challenge.

Terms & Concepts

Consumer Equilibrium: When the marginal utility per dollar spent for one item equals that for all other items. Demand: The amount of a good or service an individual consumer or a group of consumers wants at a given price. Demand Schedule: The actual quantities that consumers are willing and able to purchase at various prices. Elasticity: The sensitivity of consumer purchases to changes in price or income; a coefficient of elasticity results from dividing the percentage change in quantity demanded by the percentage change in price or in income. Equilibrium: The price and quantity associated with the intersection of the demand and supply curve reflecting alignments among consumers and producers on an items price and quantity. Law of Demand: Specifies the inverse or negative relationship that exists between an items demand quantity and its price; quantity and price move in opposite directions.

Bibliography
Arnold, Roger A. (2005). Economics (7th ed.) Mason, OH: Thomson South-Western. Guell, R. C. (2007). Issues in economics today (3rd ed.). Boston, MA: McGraw-Hill Irwin.
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McConnell, C. R. & Brue, S. L. (2008). Economics (17th ed.). Boston, MA: McGraw-Hill Irwin.

Suggested Reading
Cohn, E., Cohn, S., Balch, D., & Bradley Jr., J. (2004). The relationship between student attitudes toward graphs and performance in economics. American Economist, 48(2), 41-52. Retrieved October 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=15688726 &site=ehost-live Colander, D. (2005). What economists teach and what economists do. Journal of Economic Education, 36(3), 249260. Retrieved October 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=18314426 &site=ehost-live Hill, R., & Myatt, A. (2007). Overemphasis on perfectly competitive markets in microeconomics principles textbooks. Journal of Economic Education, 38(1), 58-76. Retrieved October 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/ login.aspx?direct=true&db=buh&AN=24660439&site=eh ost-live

Pashigian, B., & Self, J. (2007). Teaching microeconomics in wonderland. Journal of Economic Education, 38(1), 44-57. Retrieved October 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=24660433 &site=ehost-live Pyne, D. (2007). Does the choice of introductory microeconomics textbook matter? Journal of Economic Education, 38(3), 279-296. Retrieved October 12, 2007, from EBSCO Online Database Business Source Premier. http://search. ebscohost.com/login.aspx?direct=true&db=buh&AN=264 96396&site=ehost-live Saunders, P. (1991). The third edition of the test of understanding in college economics. American Economic Review, 81(2), 32. Retrieved October 12, 2007, from EBSCO Online Database Business Source Premier. http://search. ebscohost.com/login.aspx?direct=true&db=buh&AN=910 8193566&site=ehost-live Watts, M., & Lynch, G. (1989). The principles courses revisited. American Economic Review, 79(2), 236. Retrieved October 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/ login.aspx?direct=true&db=buh&AN=4508008&site=eh ost-live

Essay by Steven R. Hoagland, Ph.D.

Dr. Steven Hoagland holds bachelor and master degrees in economics, a master of urban studies, and a doctorate in urban services management with a cognate in education all from Old Dominion University. His previous service includes senior-level university administration. His current service includes teaching as an adjunct professor of economics and developing multimillion dollar grants as a team member in an independent consultant role with expertise in research design, program evaluation, in the health care, information technology, and education sectors. In 2007, he founded a nonprofit organization to addresses failures in the education marketplace by guiding college-bound high school students toward objective information relevant to their college selection and application processes and by devising risk-sensitive scholarships
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