Books and Articles by Lynne Pepall

Although micro means small, microeconomics covers a wide set of topics. These include how consumers and businesses make choices and how those choices interact through the forces of supply and demand in the marketplace; when market outcomes might be considered good and why monopoly power and information problems can make those outcomes less good; problems of risk and insurance; and the gains from international trade.

The most global view of a company is in terms of its total costs (TC), which economists use quite simply to arrive at a number for total profits (you don't need to worry about gross or net terms here). Total costs are simply the overall cost of making a product and serving it to a market after all those relevant cost elements are accounted for.

Following are some of the conditions that determine which markets are oh so perfect and which fall below the standard. A number of factors are required for a given market to be in perfect competition: Each firm is small relative to the market and has no influence on price. Firms and products are substitutable.

Firms in perfectly competitive markets are price takers. To understand the competitive position among the firms in a competitive market, it is helpful to look at the supply decisions an individual firm will make. This means that if you want to see what's happening in the market, you have to return to looking at the firm's cost curves.

By itself, total cost doesn't say much about the firm and still less about how it makes its decisions. Economists want to discover a little more about how the firm operates, so they look at the relationship between total cost and the number of units produced. To do so, they divide the cost of production by the number of units produced to derive the average costs.

Perfect competition is the name economists give to a market with many interchangeable firms, none of which can independently influence the market outcome. This scenario isn't all that likely in the real world, because it depends on a set of conditions that are unlikely to hold. But some markets do get quite close to approximating perfect competition; of course, many others do not come close.

Economists don't take the nature of changing inputs into outputs for granted. Since Adam Smith, economists have been describing in various ways the methods a firm can use to transform inputs into outputs, which they call technologies. A technology is a description of the way a firm transforms inputs into outputs.

Changing income shifts your budget constraint up or down, or if all the prices of the goods you're interested in change at the same rate, your budget constraint shifts up or down in a similar fashion. But suppose that some prices change more than others. It's more likely that some prices go up and others stay the same rather than all prices changing by the same percentage.