Micro economic analysis Key Terms

Business.com / Strategy / Last Modified: February 22, 2017

Micro economic analysis tracks and predicts the buying behavior of individuals and companies. Its primary concerns are how the buyers ...

Micro economic analysis tracks and predicts the buying behavior of individuals and companies. Its primary concerns are how the buyers and sellers interact. In addition, it considers the micro economic factors, which influence the aforementioned interaction. From these behaviors, micro economic analysis endeavors to spot patterns that could predict future economic conditions. While not perfect, this analysis can help you plan for future projects and predict future revenues.

Supply and demand

The law of supply and demand is one of the most fundamental concepts in micro economic analysis. Demand is how much of a product or service consumers want to purchase and supply represents how many units a company or individual can provide to meet that demand.

Perfect competition

Perfect competition is the term in micro economic analysis that assumes that price competition is the only form of competition possible. Furthermore, it's an idealized state in which there must be free entry into the market, sufficient knowledge, a homogenous product or service and many buyers and sellers.
Drexel University.

Pure monopoly

A pure monopoly is the concept in micro economic analysis where one company or individual has total market control over a product. Usually there's some barrier to entry into the market, such as a proprietary technology available to only one entity.

Imperfect competition

The micro economic term of imperfect competition is when there are many buyers and sellers with a highly differentiated slate of products with no barriers to entry. Product differentiation is the primary difference between perfect and imperfect competition.

Market failure

Market failure is the micro economic analysis term referring to an inefficient allocation of resources. The types of market failure are public goods, monopoly power, inequality, immobility, de merit and merit goods, agriculture and externalities.

Substitution effect

The substitution effect assumes a two-good two-price micro economic analysis and that increase in the price of one good will cause the decrease in the consumption of that good. In addition, that will increase the demand for the second good creating the substitution effect, where the consumer will change consumption behavior given a certain pricing level.

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