1. Consumer Behaviour

Consumer behaviour is a core concept in microeconomics, studying how individuals make decisions about purchasing goods and services given their limited income and unlimited wants. Key theories include utility maximization, demand curves, and factors influencing consumer choices like price, income, preferences, and availability of substitutes. Understanding consumer behavior is essential for businesses and policymakers alike.

2. Production and Costs

Production involves transforming inputs (like labor, capital, raw materials) into outputs (goods and services). Costs are incurred in this process, including fixed costs (independent of output) and variable costs (dependent on output). Firms aim to maximize profit by understanding the relationship between production levels, costs, and revenue, considering concepts like marginal cost and average cost.

3. Theory of the Firm Under Perfect Competition

In a perfectly competitive market, the theory of the firm assumes many small firms selling identical products, with no barriers to entry or exit. Firms are price takers, meaning they accept the market price. The theory analyzes how firms determine their optimal output level to maximize profits by equating marginal cost with marginal revenue (which equals price in this market structure).

4. Market Equilibrium

Market equilibrium occurs at the price where the quantity demanded by consumers equals the quantity supplied by producers. This price and quantity are determined by the interaction of demand and supply curves. Any deviation from equilibrium leads to market forces that push the price and quantity back towards equilibrium, reflecting the self-regulating nature of competitive markets.

5. Non-Competitive Markets

Beyond perfect competition, markets can be non-competitive. These include monopoly (single seller), oligopoly (few sellers), and monopolistic competition (many sellers with differentiated products). In these market structures, firms have varying degrees of market power to influence prices, leading to different outcomes in terms of output, pricing, and consumer welfare compared to perfect competition.