Microeconomics is a branch of economics that deals with individual behavior in a market and takes a close look at the decision-making process of firms and households as they try to allocate scarce resources in the market environment. Microeconomics is used to analyze how the decisions of consumers and firms affect the demand of products in the market. These behaviors determine the prices for commodities in the market. The price ,on the other hand, determines the quantity supplied by producers and the quantity demanded by consumers. There are three main concepts in microeconomics: consumer behavior, producers, and market structures.
A consumer is the final user of goods produced in a market. The consumer can be an individual or a group of people. The law of demand states that the quantity demanded inversely relates to the price of commodities. An increase in the price of a good reduces its demand and vice versa. The demand for commodities by consumers is determined by the psychological, physical, and economic factors of the consumers. These factors bring about preferences and choice among consumers. The consumers aim at maximizing the utility out of the consumption of goods. However, because of the scarce resources, their consumption is subject to the income constraint (Hunt & Lautzenheiser, 2011).
Utility measures the level of satisfaction that a consumer derives from the consumption of a commodity. Different combination of goods and services yield different utility. Utility is represented on an indifference curve. An indifference curve shows the combinations of two goods that a consumer can purchase to derive the same utility. Different utility curves represent different levels of utility with the one furthest from the origin possessing the highest utility. Consumers aim to consume at the highest utility.
However, because the resources are scarce, the consumers are constrained by their purchasing power. Consumption...