In the overall subject of economics, there are two fields that often occupy a semester each at the high school level before you specialize at the college level: microeconomics and macroeconomics. Microeconomics focuses on how individuals act in the market, often looking at single firms within an industry to make inferences about others. This is as opposed to macroeconomics, which concerns itself with larger market factors, like inflation, unemployment, and interest rates. Microeconomics often takes the approach of looking at business the way you would if you were inside of one specific business, instead of looking at the market as a whole.
One way that this might be applied with private microeconomics tutors is through the equation for supply and demand. In a graph that has quantity on the x-axis and price on the y-axis, supply and demand functions are used to set the ideal price for the most profit. Both functions are usually represented by an exponential curve, meaning that marginal changes in price or quantity have different effects on the other as you move along the graph. For example, a twenty cent decrease on a $3 soda might increase demand by 100,000 cans of soda, but a decrease of twenty cents from $300 will probably have no effect on demand at all, as it is probably close to zero. Economists use the two functions to find an intersection, which is called the equilibrium. At this point, utility is maximized, as it is the ideal price and quantity for both the consumer and producer.
This all seems simple, but it is just an entry point to understanding how it works in practice. Supply and demand are not perfect curves and quantity and price are not the only dimensions that dictate demand. There are many factors, competition at the forefront, that can significantly influence the price of goods and services. For example, Amazon and Wal-Mart’s models might show why they are able to influence the market, as they force companies out of equilibrium to compete. The economies of scale of large chains like those allow them to dictate the market price, which could change the demand equation for all parties.
Another concept learned in microeconomics is elasticity. In simple terms, price elasticity is the amount of change in price associated with the change of another variable. This is represented graphically by the slope of the supply or demand functions. A perfectly elastic demand curve is one where the slope is 0, meaning that no matter what the price is, the quantity demanded will remain constant. This is the case for goods that are necessary to live, such as water or life-saving medication. If they suddenly made water a million dollars a bottle, we would all have to figure out how to become millionaires because we need water. On the other side, perfectly inelastic demand is represented by a vertical line, which is infinite slope. These are luxury goods that would be bought by the same number of people no matter what. For example, the brand Supreme has made a name for themselves with products that have inelastic demand thanks to their limits to the supply. They only make a certain amount of each product, usually very limited and sell at an initial price that is fairly high. Even still, those products are resold at ridiculous markups because there is a small segment of people that want them at any cost.
To learn about how businesses make decisions on price and other concepts about how individual firms move within the market, search for microeconomics tutors near me.