Question

what are the main principles of microeconomics besides Supply and Demand? Explain each. ( a paragraph minimum for each principle).

Answer 1

Following are the few microeconomics principles that help to predict the individual economic behavior:

• Utility maximization: Each individual seeks to maximize his utility by optimally utilizing the available resources. The maximization of utility provides maximum satisfaction.
• Diminishing marginal utility: The Marginal utility is the change in the total utility owing to an increase in the consumption by the one unit. The marginal utility keeps declining when one additional unit of consumption is added.
• Law of opportunity cost: Opportunity cost shows the tradeoff. All needs can not be met simultaneously. When expenditure is made on the one good it implies that we are giving up the chances of making spending on another good.
• Rationality: in micro econmis, we assume that both producer and consumer are rational who seek to maximize the returns out of spending.