Revision sheet: Fundamentals of Micro and Macroeconomics

Microeconomics & Macroeconom Revision

1. 📌 Essentials

• Microeconomics studies individual agents (households, firms) and markets.
• Macroeconomics analyzes aggregate economic variables (GDP, inflation, unemployment).
• Market structures: perfect competition, monopolistic competition, oligopoly, monopoly.
• Scarcity: limited resources vs unlimited wants.
• Opportunity cost: value of the next best alternative foregone.
• Law of demand: inverse relationship between price and quantity demanded.
• Law of supply: direct relationship between price and quantity supplied.
• Equilibrium: where supply equals demand; determines market price and quantity.
• Elasticity: responsiveness of demand or supply to price changes.
• Price controls: ceilings (shortages) and floors (surpluses) distort markets.

2. 🧩 Key Structures & Components

• Demand Curve — shows quantity consumers want at each price; slopes downward.
• Supply Curve — shows quantity firms are willing to sell at each price; slopes upward.
• Market Equilibrium — intersection point of supply and demand.
• Price Elasticity of Demand (PED) — measures demand responsiveness to price.
• Production Possibility Frontier (PPF) — illustrates maximum output combinations given resources.
• Externalities — costs or benefits affecting third parties (positive or negative).
• Market Power — firms' ability to influence prices (monopoly, oligopoly).
• Government Price Controls — ceilings and floors affecting market outcomes.

3. 🔬 Functions, Mechanisms & Relationships

• Demand and supply interact to establish market price and quantity.
• Elasticity influences how quantity demanded or supplied reacts to price changes.
• Price elasticity of demand:
  • Elastic (>1): quantity responds strongly; TR moves opposite to price change.
  • Inelastic (<1): quantity responds weakly; TR moves with price.
• Total Revenue (TR):
  • Inelastic demand: price increase → TR increase.
  • Elastic demand: price increase → TR decrease.
• Market failure occurs when externalities or market power distort efficiency.
• Government interventions aim to correct market failures via price controls or taxes.

4. 📊 Comparative Table

5. 🗂️ Hierarchical Diagram

Economics
 ├─ Microeconomics
 │    ├─ Market Structures
 │    │    ├─ Perfect Competition
 │    │    ├─ Monopoly
 │    │    ├─ Oligopoly
 │    │    └─ Monopolistic Competition
 │    ├─ Supply & Demand
 │    │    ├─ Demand Curve
 │    │    ├─ Supply Curve
 │    │    └─ Equilibrium
 │    ├─ Elasticity
 │    │    ├─ Price Elasticity of Demand
 │    │    ├─ Income Elasticity
 │    │    └─ Price Elasticity of Supply
 │    └─ Market Failures
 │         ├─ Externalities
 │         └─ Market Power
 └─ Macroeconomics
      ├─ National Income
      ├─ Inflation
      ├─ Unemployment
      └─ Fiscal & Monetary Policy

6. ⚠️ High-Yield Pitfalls & Confusions

• Confusing elasticity categories; remember PED >1 = elastic, <1 = inelastic.
• Mistaking market equilibrium as always stable; it can be disrupted by shocks.
• Overlooking externalities as causes of market failure.
• Assuming price controls always improve welfare; often cause shortages or surpluses.
• Confusing demand shifts (income, preferences) with supply shifts (costs, technology).
• Forgetting opportunity cost is subjective and varies per individual.
• Misinterpreting total revenue effects under elastic/inelastic demand.
• Ignoring time as a factor influencing elasticity.

7. ✅ Final Exam Checklist

• Understand the difference between micro and macroeconomics.
• Know the main market structures and their characteristics.
• Be able to draw and interpret demand and supply curves.
• Identify equilibrium price and quantity.
• Calculate and interpret price elasticity of demand and supply.
• Recognize factors causing shifts in demand and supply.
• Explain the effects of price elasticity on total revenue.
• Describe externalities and market failures.
• Understand government interventions: price ceilings and floors.
• Know the concepts of opportunity cost and marginal analysis.
• Be familiar with the production possibilities frontier.
• Recognize the causes and effects of inflation and unemployment.
• Understand the circular flow diagram and basic macroeconomic indicators.
• Be aware of the difference between positive and normative economics.
• Know how market power influences prices and output.
• Be able to analyze the impact of taxes, subsidies, and regulations.

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