B. Basics

This section of the handbook presents three basic ideas in microeconomics. The circular flow diagram illustrates how the two types of economic agents, consumers and producers, interact in the two types of markets, markets for finished goods and services and markets for factors of production. The second basic idea is that economic variables, such as income, wealth, prices and interest rates, are measured differently. The third basic idea is how economic agents interact in the market for a commodity and how this determines the commodity’s price and the amount of it produced and consumed.