Microeconomics

                                           

 Microeconomics and macroeconomics are the two major branches of modern economics. Microeconomics examines the decisions and actions of individual units and small groups of units, such as households, consumers, producers, firms, industries, and specific commodities. On the other hand, macroeconomics deals with the study of the entire economy, including all producers and consumers within it, rather than focusing on individual units. The terms "micro" and "macro" were first used by Ragnar Frisch in 1933 to distinguish between these two subfields.

Microeconomics is a crucial branch of economics that deals with the study of individual economic agents, such as consumers, firms, and industries. It focuses on the analysis of the market behavior of these agents and how they interact with each other to determine the prices of goods and services. At the core of microeconomics lies the concept of equilibrium, which is the point at which the supply and demand curves intersect. This intersection sets the price of the commodity in question.

Microeconomics is sometimes referred to as pricing theory because it analyzes how the supply and demand of goods and services determine their prices. In contrast, macroeconomics focuses on pricing factors of production such as land, labor, capital, and businesses.

Microeconomics provides an in-depth understanding of the behavior of consumers and firms by studying various microeconomic variables such as utility, cost of purchasing, demand, supply, price, cost of production, revenue from sales, and profit or loss. It offers a worm’s eye view of an economy by analyzing the behavior of a single firm or firm belonging to an industry.

Overall, microeconomics plays a crucial role in shaping our understanding of how goods and services are priced and how consumers and firms interact in a market economy.

Microeconomics can be applied in real-life scenarios such as how to allocate resources to best suit individuals' and families' needs and wants within the constraints of their available budget. It can also help in determining whether to work and if so, whether to work full or part-time. In addition, microeconomics can aid in making financial decisions such as investing or saving money. Furthermore, it can assist in a company's decision-making process, including manufacturing and selling specific goods, determining the quantity of each to sell, setting prices, hiring employees, and financing operations. It can also help companies decide whether to grow, shrink, or go out of business.

Importance of Microeconomics

The study of Microeconomics is essential as it helps us understand how the economy functions in terms of allocating scarce resources to different productive uses. By knowing the interactions and relationships between different individual units of the economy, we can formulate different policies and models, which in turn enhances their effectiveness. Additionally, Microeconomics provides us with useful tools and techniques that help in the decision-making process of businesses, including pricing strategies, demand forecasting, and factors affecting demand and elasticity of demand. It helps to examine the market failure. It studies the psychology( taste preferences, needs, wants) of different economic agents such as consumers, producers, and government.

Microeconomics' objectives

• Equity

Equity, a key objective in microeconomics, aims for a fair distribution of income and wealth within society. Microeconomic analysis focuses on preventing conflicts arising from unequal resource distribution by developing models and policies that promote a just sharing of benefits and burdens among individuals and economic entities.

• Efficiency

By making the most out of available resources, we can achieve optimal efficiency. It's important to prioritize enjoyment and satisfaction in everything we do, as this is what makes life truly fulfilling. So let's strive to utilize our resources in the best possible way to experience maximum enjoyment and overall success. Being efficient is important as it helps to reduce costs and increase the usefulness of resources.

• Growth

To raise living standards, we achieve growth by increasing the production of goods and services.

• To examine market failure

It describes the conditions required for perfect competition and the failure of markets to generate efficient outcomes.

• To investigate how markets function

It determines to price of products and services and how scarce resources are distributed among many other purposes.

• Stability

Achieving stability in employment, prices, and production is crucial for any economy to thrive. This is why it's essential to reduce the variance in these areas. By doing so, we can not only promote economic growth but also ensure that people have access to steady employment and affordable prices. So, let's work together to create a stable economic environment by reducing the variance in employment, prices, and production.

Scope of Microeconomics:

The area of research is the scope. The theory of income and employment, often known as microeconomics, covers the following ground.

• Theory of factor pricing 

The factor prices for land, labor, capital, and entrepreneurship are determined by microeconomics and are expressed as rent, wages, interest, and profits, respectively. The elements that go into production are land, labor, capital, and entrepreneurship.

• Economic welfare theory

In microeconomics, welfare economics focuses on finding solutions to issues and achieving economic efficiency to promote public welfare. It seeks to increase production, consumption, and distribution efficiency to achieve total efficiency and offers solutions to the questions of what to produce when to produce it, how to make it, and for whom it should be produced.

• Commodity price and the theory of product pricing

The market forces of supply and demand decide the price of each given commodity. Demand analysis is a topic in microeconomics. Specifically, supply analysis and individual consumer behavior i.e., the actions of a single producer.

Types of Microeconomics

Based on the analysis, the equilibrium between two variables in microeconomics is divided into three parts: microstates, comparative, and dynamic, which are also called types of microeconomics.

• Micro Statics

• Comparative Micro Statics and

• Micro Dynamics

Micro statics

 

Microstatics is a branch of microeconomics that focuses on the study of a single economic scenario or equilibrium. It is comparable to taking a snapshot of a particular economic situation. This approach allows economists to analyze and understand the fundamental principles of microeconomics, such as supply and demand, production, and pricing, in a specific and detailed way. By examining a microeconomic equilibrium, economists can gain insights into the behavior of individual consumers, firms, and markets and how they interact with one another.

Comparative Micro statics

Comparative microstatics is a technique used to compare two or more equilibrium states of a system. It allows us to analyze the differences between the variable's two equilibrium positions without considering the adjustment's transitory phase or its process. This technique works just like comparing two pictures, where we can observe and identify the variations between them. By using comparative microstatics, we can gain valuable insights into the behavior of the system and make informed decisions based on the observed differences between its equilibrium states.

Microdynamics

 Micro-dynamics is a field of study that focuses on analyzing intricate details of how and when an equilibrium point shifts from its initial position to the final one. It can be compared to a video that captures and presents every piece of relevant information comprehensively. This discipline is crucial in understanding complex systems and processes, and it plays a significant role in various scientific and engineering applications.

Microeconomics' dependence on macroeconomics

Macroeconomics examines how numerous markets interact, while microeconomics examines the behavior of a single isolated market. Microeconomics examines production factors like land, labor, and capital-intensive businesses. It addresses the microeconomic activity that flows through this element of production.

However, microeconomics cannot ascertain one side's wages or interests. However it has to research the typical waves established by macroeconomics.

On the other hand, national income, a macroeconomic quantity, is the total of an individual's income. Thus, microeconomics and microeconomics are interdependent, even though microeconomics aims to maximize a firm's profit, while macroeconomics aims for employment, economic progress, etc.

Problems in Microeconomics

• The externalities issue: 

When one person's activities may have an impact on another's well-being, a microeconomics problem is known as an externality issue. The classic illustration is pollution when someone can hurt someone else without directly benefiting from it. Economists must comprehend how this impacts their analyses because it can be observed in many facets of daily life. The externality problem can appear when one person or group does something that has an impact on other people or groups. For instance, we would see it as an externality if one person cut down a tree and this results in damage to another person's home because neither party was aware of the effects of their acts.

What impact does the externality question have on economic theory?

We require a model that accurately captures reality and enables us to forecast outcomes under various circumstances for economics to be useful. We do not always match up with our predictions, though.

The other microeconomic problems are:

• Ecological concerns
• Inequality
• Poverty
• Unstable pricing
• Irrational conduct
• Monopoly

In summary

• Microeconomics helps in understanding the mechanism of individual markets.

• It suggests ways for making full utilization of resources.

• It facilitates the formation of economic models that can be further used to understand the real economic phenomenon.

You may be interested in: 

Macroeconomics

Inequality in Economics

Poverty

Monopoly

 

Reference:

Tucker, I. B. (2017). Microeconomics for Today, 9th edition. Published by Cengage Learning.