Microeconomic is based on the supply and demand principles. As the change in price of a good or services, it will change in quantity supplied (movement along a supply curve) (text book ). When change in income, preferences or prices of other goods or services, it will change supply (shift of a curve). (text book )
The following example illustrates the simple idea on the affect of behavior for the individual firms/household in the market. Assuming as the demands of iPhone increase. Figure 1 Supply and Demand diagram for iPhone.
The result shows as the demands increase, the quantity and price increase. That means when more people want to buy more iPhone, Apple will increase the quantity as the …show more content…
The most common example will be inflation.
Inflation is defined as a rise in the general price level over a period of time, which many goods and services such as foods and transportation will rise along with the inflation period. This will create problems for economy on the microeconomic level.
In firms, costs of production will rise, the interest rate, taxes, electricity and rent will become more expensive and workers demand higher wages to compensate for inflation. However, the major influence on inflation will be on the production field, the below graph is an example on inflation affect on the fishes’ supply and demand.
Figure 4 Inflation effect in gases
The graph illustrates that when the price increase, the supply decrease but demand increase and the quantity decrease. This means when inflation occurs, more people demand for fishes and when more people desire to buy fish, the supply and quantity