High quality investment advisors and portfolio managers need to have base competency in economic theory in order to value and forecast asset prices. Economics is the study of how people choose to use their resources. It is a branch of knowledge concerned with production, consumption and transfer of wealth. Economics consists of two broad areas of study, namely, macroeconomics and microeconomics. Microeconomics is concerned with how buyers and sellers interact with each other to determine the prices. In this we study the behaviour of individual households and firms to understand how they make decisions to allocate their limited resources.
This reading provides an introduction to the most important concepts in microeconomics related to the principles of demand and supply of goods and services.
Key Concepts:
- Demand and supply
- Equilibrium
- Efficient allocation of resources
- Elasticity
- Excess supply and demand
- Consumer and producer surplus