Microeconomics and Macroeconomics
Microeconomics
Demand slopes downward; supply slopes upward. Equilibrium is where they meet. Price elasticity of demand measures responsiveness: elastic (greater than 1) means revenue falls when price rises; inelastic means revenue rises. Costs divide into fixed and variable; marginal cost drives short-run supply. Market structures run from perfect competition (many firms, homogeneous product) through monopolistic competition and oligopoly to monopoly (single seller, high barriers). Externalities cause market failure and justify taxes or subsidies.
Macroeconomics
Gross domestic product measures output within borders. Inflation erodes purchasing power; demand-pull and cost-push are the main types. Unemployment includes frictional, structural and cyclical forms. Fiscal policy uses government spending and taxation; monetary policy uses interest rates and money supply, typically run by a central bank. Expansionary policy stimulates but risks inflation.
Traps to watch
- Confusing a shift in the demand curve with a movement along it (a price change moves along).
- Assuming elasticity is constant along a straight-line demand curve - it is not.
- Mixing GDP (domestic output) with GNP (nationals' output).
- Treating structural unemployment as fixable by demand stimulus alone.
Worked example
A 10% price rise cuts quantity demanded by 25%. Elasticity = 25 / 10 = 2.5, elastic. Revenue falls because the volume loss outweighs the price gain. Rule of thumb: raise price only when demand is inelastic.