Microeconomics

Economic variables are measurements that describe economic units, like the GDP, Inflation or Interest Rates.

A variable is defined as a set of attributes of an object. Attributes are characteristics that describe an object. Economic variables are measurements that describe economic units, for example, a country, a government, a company or a person.

Substitute Goods

Definition of Substitute Goods

Substitute goods are those goods that can satisfy the same necessity, they can be used for the same end.

Examples of Substitute Goods

  • Coca-cola and Pepsi
  • Car, motorbike, bike and public transport
  • Butter and margarine
  • Tea and coffee
  • Bananas and Apples

Cross Elasticity of Demand of Substitute Goods

Cross elasticity is the percentage change in quantity demanded for a good  that occurs in response to a percentage change in price of anther good:

Supply

A vertical supply represents a situation in which the offered quantity is fixed and do not changes when the price changes. The vertical supply is also called perfect inelastic supply because the variation in quantity is always zero.

Price elasticity of the supply measures the responsiveness of the quantity supplied when the price variates. It is defined by the proportional change in the quantity supplied, divided the proportional change in the price:

es = (ΔQ/Q)/(ΔP/P)

Where:

Complementary

Definition of Complementary Goods

Complementary goods are goods that are usually consumed together or that have the ability to provide a higher utility when consumed together.

Microeconomic variables

Microeconomics studies studies individual units, like families or businesses. Macroeconomics studies economic aggregates.

Microeconomic variables are those patterns or elements that can be used to describe the behavior of a person or an individual economic unit, like a business. A variable is a magnitude that may have different values in different periods of time. Variables are measurements that help to understand the behavior of economic units or the behavior of the economy as whole.

The elasticity of the demand shows the responsiveness of the quantity demanded to a change in the price.

It is defined as the proportional change in the quantity demanded, divided the proportional change in the price.

e = (ΔQ/Q)/(ΔP/P)

When the price increases (+), the quantity demanded decreases (-): the demand elasticity is usually negative.

Graphically:

  • Behavioural Economics
  • Ecological Economics
  • Environmental Economics
  • Health Economics
  • Information Economics
  • International Economics
  • Labour Economics
  • Monetary Economics
  • Population Economics
  • Public Finance
  • Urban Economics

Microeconomics

When the price of a product or service increases (for example: if the demand increases), the quantity produced usually increases. Similarly, when the demand decreases, the price decreases and the quantity produced usually decreases.

The variation in the quantity in the face of a price variation can be big or small. But how to measure if the responsiveness of the supply is big or small?

The cross elasticity of demand measures the responsiveness of the quantity demanded, when the price of another good changes. It is defined as the percentage change in the quantity demanded divided the percentage change in the price of the second good.

eAB = (ΔQA/QA)/(ΔPB/PB)

The cross elasticity gives us important information about the economic relation between the goods and services.

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