{"id":2799,"date":"2023-02-19T16:10:50","date_gmt":"2023-02-19T16:10:50","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/learn-it-2-3-1-microeconomics\/"},"modified":"2025-05-21T17:06:58","modified_gmt":"2025-05-21T17:06:58","slug":"learn-it-2-3-1-microeconomics","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/learn-it-2-3-1-microeconomics\/","title":{"raw":"Learn It 2.3.1: Microeconomics","rendered":"Learn It 2.3.1: Microeconomics"},"content":{"raw":"<section class=\"textbox learningGoals\">\r\n<ul>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the law of demand and how it is visually represented&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the law of demand and how it is visually represented<\/span><\/li>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the law of supply and how it is visually represented&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the law of supply and how it is visually represented<\/span><\/li>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand surpluses and shortages&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand surpluses and shortages<\/span><\/li>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand equilibrium price and quantity&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand equilibrium price and quantity<\/span><\/li>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Identify factors that can change supply and demand&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Identify factors that can change supply and demand<\/span><\/li>\r\n<\/ul>\r\n<\/section>\r\n<h2>Microeconomics<\/h2>\r\n<p id=\"fs-idm351443344\">Now let\u2019s shift to <strong>microeconomics<\/strong><em data-effect=\"italics\">,<\/em> the study of households, businesses, and industries. This field within economics is concerned with how individual people and businesses affect the prices and quantities of goods and services in a free market.<\/p>\r\n<p id=\"fs-idm341057488\">Consumers in a free market influence what is produced. As Mexican food became part of mainstream food culture in the United States, demand increased. The higher demand attracts entrepreneurs who opened more Mexican or Mexican-inspired restaurants (think Taco Bell and Chipotle) . They want to compete for our dollars by supplying food at a lower price, better quality, or with different features, such as combining Korean barbecue or Southern fried chicken with tacos. This section explains how business and consumer choices influence the price and availability of goods and services.<\/p>\r\n<div id=\"bfig-009\" class=\"os-figure\">\r\n<figure class=\"scaled-down\" data-id=\"bfig-009\"><span id=\"bmedia-009\" data-type=\"media\" data-alt=\"A photograph shows a large display of the Samsung Galaxy note smart phone, with a stylus pen touching the screen.\"><\/span><\/figure>\r\n<h2>The Nature of Demand<\/h2>\r\n<\/div>\r\n<section id=\"bsec-037\" data-depth=\"1\">\r\n<section class=\"textbox keyTakeaway\">\r\n<h3>law of demand<\/h3>\r\n<p><strong><span id=\"term141\" data-type=\"term\">Demand<\/span><\/strong> is the quantity of a good or service that people are willing to buy at various prices. According to the law of demand, there is an indirect relationship between price and the quantity consumers are willing to buy. The higher the price, the lower the quantity demanded. Lower prices will correspond to higher quantities demanded. A graph of this relationship is called a <strong><span id=\"term142\" data-type=\"term\">demand curve<\/span><\/strong>.<\/p>\r\n<\/section>\r\n\r\n[caption id=\"attachment_1320\" align=\"alignright\" width=\"300\"]<img class=\"wp-image-1320 size-medium\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5830\/2022\/09\/14214159\/pexels-mikhail-nilov-9393922-300x200.jpg\" alt=\"assorted coats hanging on a clothes rack\" width=\"300\" height=\"200\" \/> Figure 1. The demand for coats is influenced by their price.[\/caption]\r\n\r\n<p id=\"fs-idm351560176\">Let\u2019s assume you own a clothing store that sells winter coats. From past experience, you know how many coats you can sell at different prices. The demand curve below shows\u00a0this information. The\u00a0<em data-effect=\"italics\">x<\/em>-axis (horizontal axis) shows the quantity of coats, and the\u00a0<em data-effect=\"italics\">y<\/em>-axis (vertical axis) shows the related price of those coats. For example, at a price of $100, customers will buy (demand) 600 coats.<\/p>\r\n<p id=\"fs-idm349775024\">In the graph, the demand curve slopes downward and to the right because as the price falls, people will want to buy more coats. Some people who were not going to buy a coat will purchase one at the lower price. Also, some people who already have a coat will buy a second one. The graph also shows that if you put a large number of coats on the market, you will have to reduce the price to sell all of them.<\/p>\r\n<h3>Why Demand Matters<\/h3>\r\n<p id=\"fs-idm365360176\">Understanding demand is critical to businesses. Demand tells you\u00a0<em data-effect=\"italics\">how much you can sell<\/em>\u00a0and\u00a0<em data-effect=\"italics\">at what price<\/em>\u2014in other words, how much money the the business will take in that can be used to cover costs and hopefully earn a profit. Predicting demand is difficult even for the very largest corporations, but particularly for small firms.<\/p>\r\n<div id=\"bfig-010\" class=\"os-figure\">\r\n<figure class=\"scaled-down\" data-id=\"bfig-010\">\r\n[caption id=\"\" align=\"alignnone\" width=\"646\"]<img id=\"4\" src=\"https:\/\/openstax.org\/apps\/archive\/20220815.182343\/resources\/ea25b143fc0b609beffc293f7d57456021215af3\" alt=\"An image of a demand curve graph representing the relationship between the price and quantity of coats. The horizontal axis is labeled &quot;Quantity (x)&quot; and scales from 0 to 1400 in increments, while the vertical axis is labeled &quot;Price ($)\u201d and scales from $0 to $200. The curve starts high on the price axis and slopes downwards to the right, showing a negative relationship between price and quantity demanded. The curve is made up of connected square points, indicating specific price points at various quantities. A dashed horizontal and vertical line intersects the curve, indicating a particular price-quantity combination.\" width=\"646\" height=\"368\" data-media-type=\"image\/png\" \/> Figure 2. The demand curve shows the inverse relationship between price and quantity demanded for coats.[\/caption]\r\n<\/figure>\r\n<section class=\"textbox tryIt\">[ohm2_question height=\"350\"]3445[\/ohm2_question]<\/section>\r\n<\/div>\r\n<\/section>","rendered":"<section class=\"textbox learningGoals\">\n<ul>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the law of demand and how it is visually represented&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the law of demand and how it is visually represented<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the law of supply and how it is visually represented&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the law of supply and how it is visually represented<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand surpluses and shortages&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand surpluses and shortages<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand equilibrium price and quantity&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand equilibrium price and quantity<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Identify factors that can change supply and demand&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Identify factors that can change supply and demand<\/span><\/li>\n<\/ul>\n<\/section>\n<h2>Microeconomics<\/h2>\n<p id=\"fs-idm351443344\">Now let\u2019s shift to <strong>microeconomics<\/strong><em data-effect=\"italics\">,<\/em> the study of households, businesses, and industries. This field within economics is concerned with how individual people and businesses affect the prices and quantities of goods and services in a free market.<\/p>\n<p id=\"fs-idm341057488\">Consumers in a free market influence what is produced. As Mexican food became part of mainstream food culture in the United States, demand increased. The higher demand attracts entrepreneurs who opened more Mexican or Mexican-inspired restaurants (think Taco Bell and Chipotle) . They want to compete for our dollars by supplying food at a lower price, better quality, or with different features, such as combining Korean barbecue or Southern fried chicken with tacos. This section explains how business and consumer choices influence the price and availability of goods and services.<\/p>\n<div id=\"bfig-009\" class=\"os-figure\">\n<figure class=\"scaled-down\" data-id=\"bfig-009\"><span id=\"bmedia-009\" data-type=\"media\" data-alt=\"A photograph shows a large display of the Samsung Galaxy note smart phone, with a stylus pen touching the screen.\"><\/span><\/figure>\n<h2>The Nature of Demand<\/h2>\n<\/div>\n<section id=\"bsec-037\" data-depth=\"1\">\n<section class=\"textbox keyTakeaway\">\n<h3>law of demand<\/h3>\n<p><strong><span id=\"term141\" data-type=\"term\">Demand<\/span><\/strong> is the quantity of a good or service that people are willing to buy at various prices. According to the law of demand, there is an indirect relationship between price and the quantity consumers are willing to buy. The higher the price, the lower the quantity demanded. Lower prices will correspond to higher quantities demanded. A graph of this relationship is called a <strong><span id=\"term142\" data-type=\"term\">demand curve<\/span><\/strong>.<\/p>\n<\/section>\n<figure id=\"attachment_1320\" aria-describedby=\"caption-attachment-1320\" style=\"width: 300px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-1320 size-medium\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5830\/2022\/09\/14214159\/pexels-mikhail-nilov-9393922-300x200.jpg\" alt=\"assorted coats hanging on a clothes rack\" width=\"300\" height=\"200\" \/><figcaption id=\"caption-attachment-1320\" class=\"wp-caption-text\">Figure 1. The demand for coats is influenced by their price.<\/figcaption><\/figure>\n<p id=\"fs-idm351560176\">Let\u2019s assume you own a clothing store that sells winter coats. From past experience, you know how many coats you can sell at different prices. The demand curve below shows\u00a0this information. The\u00a0<em data-effect=\"italics\">x<\/em>-axis (horizontal axis) shows the quantity of coats, and the\u00a0<em data-effect=\"italics\">y<\/em>-axis (vertical axis) shows the related price of those coats. For example, at a price of $100, customers will buy (demand) 600 coats.<\/p>\n<p id=\"fs-idm349775024\">In the graph, the demand curve slopes downward and to the right because as the price falls, people will want to buy more coats. Some people who were not going to buy a coat will purchase one at the lower price. Also, some people who already have a coat will buy a second one. The graph also shows that if you put a large number of coats on the market, you will have to reduce the price to sell all of them.<\/p>\n<h3>Why Demand Matters<\/h3>\n<p id=\"fs-idm365360176\">Understanding demand is critical to businesses. Demand tells you\u00a0<em data-effect=\"italics\">how much you can sell<\/em>\u00a0and\u00a0<em data-effect=\"italics\">at what price<\/em>\u2014in other words, how much money the the business will take in that can be used to cover costs and hopefully earn a profit. Predicting demand is difficult even for the very largest corporations, but particularly for small firms.<\/p>\n<div id=\"bfig-010\" class=\"os-figure\">\n<figure class=\"scaled-down\" data-id=\"bfig-010\">\n<figure style=\"width: 646px\" class=\"wp-caption alignnone\"><img loading=\"lazy\" decoding=\"async\" id=\"4\" src=\"https:\/\/openstax.org\/apps\/archive\/20220815.182343\/resources\/ea25b143fc0b609beffc293f7d57456021215af3\" alt=\"An image of a demand curve graph representing the relationship between the price and quantity of coats. The horizontal axis is labeled &quot;Quantity (x)&quot; and scales from 0 to 1400 in increments, while the vertical axis is labeled &quot;Price ($)\u201d and scales from $0 to $200. The curve starts high on the price axis and slopes downwards to the right, showing a negative relationship between price and quantity demanded. The curve is made up of connected square points, indicating specific price points at various quantities. A dashed horizontal and vertical line intersects the curve, indicating a particular price-quantity combination.\" width=\"646\" height=\"368\" data-media-type=\"image\/png\" \/><figcaption class=\"wp-caption-text\">Figure 2. The demand curve shows the inverse relationship between price and quantity demanded for coats.<\/figcaption><\/figure>\n<\/figure>\n<section class=\"textbox tryIt\"><iframe loading=\"lazy\" id=\"ohm3445\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=3445&theme=lumen&iframe_resize_id=ohm3445&source=tnh&show_question_numbers\" width=\"100%\" height=\"350\"><\/iframe><\/section>\n<\/div>\n<\/section>\n","protected":false},"author":21,"menu_order":15,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc-attribution\",\"description\":\"1.6 Microeconomics: Zeroing in on Businesses and Consumers\",\"author\":\"Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, James C. Hyatt\",\"organization\":\"OpenStax\",\"url\":\"https:\/\/openstax.org\/books\/introduction-business\/pages\/1-6-microeconomics-zeroing-in-on-businesses-and-consumers\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"Access for free at https:\/\/openstax.org\/books\/introduction-business\/pages\/1-introduction\"},{\"type\":\"cc\",\"description\":\"assorted clothes hanging on a clothes rack\",\"author\":\"Mikhail Nilov\",\"organization\":\"Pexels\",\"url\":\"https:\/\/www.pexels.com\/photo\/assorted-coats-hanging-in-a-clothes-rack-9393922\/\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":2786,"module-header":"learn_it","content_attributions":[{"type":"cc-attribution","description":"1.6 Microeconomics: Zeroing in on Businesses and Consumers","author":"Lawrence J. 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