MicroEconomics
Microeconomics is coined from a greek word "mikro" which means small or little. Therefore, we can say that microeconomics studies the small portion or area of an economy. What that sentence is trying to say is that, micro economics studies the individuals income and their spendings within the economy. We can also say that:Microeconomics is the branch of economics that deals with household behaviour which is sometimes reffered to as consumer theory. Consumer theory is built on the concept of utility: the economic measure of happiness,which increases as consumption of certain goods increases. What consumers want to consume is captured by their utility function, which measures the happiness derived from consuming a set of goods. Consumers, however, are also bound by a budget constraint, which limits the number or kinds of goods and services they can purchase. The consumers are modeled as utility maximizers: they will try to purchase the optimal number of goods that maximizes their utility, given their budget. This branch also run under the umbrella of the cycular flow of money or income which studies the circulation of money within a given economy from the household to firm which of course operate under the two sector model. Now lets look at the agents that play significant role under the two sector and their functions:
1. Household
The household play a cruicial role in the circular flow as they are the owners of all the factors of production i.e Land, Labour, Capital and enterpreneurship. But first who are household members, they are you me and every single individual in a state or a country. If you look at what i just said with a sense of observation, you will come to realize that its true. First, who owns house, you your parents friends, uncle Joe etc (land). Second, who go to work to earn some couple of bucks for the family's consuption, also you, youe parents etc (labour). Third, who own the machineries used in the farm, or who contributed his money for running the family's business, i guess you know the answer (capital & enterpreneurship).
2. Firm
If i say firm, i mean an indutry, a company or a business organisation which employ all those factors of production like the land, labour, capital and enterpreneurship to produce goods and service to its customers (household). So as you can see, household consumes and firm produces and the cycle continues (cetirus paribus).
KEY STUDIES IN MICROECONOMICS
1.Demand, supply, and equilibrium
Supply and demand is an economic model of price determination in a perfectly competitive market. It concludes that in aperfectly competitive market with no externalities,per unit taxes, or price controls, the unit price for a particular good is the price at which the quantity demanded by consumers equals the quantity supplied by producers. This price results in as table economic equilibrium.
2.Measurement of elasticities
Elasticity (economics) this is the degree of responsiveness of demand or supply to little changes in price or quantity demanded or supppied. Elasticity can be quantified as the ratio of the change in one variable to the change in another variable, when the later variable has a causal influence on the former. It is a tool for measuring the responsiveness of a variable, or of the function that determines it, to changes in causative variables in unitless ways. Frequently used elasticities includeprice elasticity of demand,price elasticity of supply,income elasticity of demand, elasticity of substitution or constant elasticity of substitution between factors of production and elasticity of intertemporal substitution.
3.Consumer demand theory
Consumer choice Consumer demand theory relates preference theory of consumption of both goods and services to the consumption expenditures; ultimately, this relationship between preferences and consumption expenditures is used to relate preferences to consumer demand curves. The link between personal preferences, consumption and the demand curve is one of the most closely studied relations in economics. It is a way of analyzing how consumers may achieve equilibrium between preferences and expenditures by maximizing utility subject to consumer budget constraints.
4.Theory of production
Production theory is the study of production, or the economic process of converting inputs into outputs. Production uses resources to create a good or service that is suitable for use,gift-giving in a gift economy, or exchange in a market economy. This can include manufacturing, storing,shipping, and packaging. Some economists define production broadly as all economic activity other than consumption. They see every commercial activity other than the final purchase as some form of production.
5.Costs of production theory of value
The cost-of-production theory of value states that theprice of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can comprise any of the factors of production:labour,capital,land,entrepreneur. Technology can be viewed either as a form offixed capital(e.g plant) orcirculating capital(e.g intermediate goods).In the mathematical model for the cost of production, the short-run total cost is equal tofixed cost plus total variable cost. The fixed cost refers to the cost that is incurred regardless of how much the firm produces. The variable cost is a function of the quantity of an object being produced.
6.Opportunity cost
The economic idea of opportunity cost is closely related to the idea of time constraints. One can do only one thing at a time, which means that, inevitably, one is always giving up other things. The opportunity cost of any activity is the value of the next-best alternative thing one may have done instead. Opportunity cost depends only on the value of the next-best alternative. It doesn’t matter whetherone has five alternatives or 5,000. Opportunity costs can tell when not to do something as well as when to do something. For example, one may like waffles, but like chocolate even more. If someone offers only waffles, one would take it. But if offered waffles or chocolate, one would take the chocolate. The opportunity cost of eating waffles is sacrificing the chance to eat chocolate. Because the cost of not eating the chocolate is higher than the benefits of eating the waffles, it makes no sense to choose waffles. Of course, if one chooses chocolate,they are still faced with the opportunity cost of giving up having waffles. But one is willing to do that because the waffle's opportunity cost is lower than the benefits of the chocolate. Opportunity costs are unavoidable constraints on behaviour because one has to decide what’s best and give up the next-best alternative.
7.Market structure
This section does not cite any sources. Market structure(or market form) refers to features of a market, including the number of firms in the market, the distribution of market shares between them, product uniformity across firms, how easy it is for firms to enter and exit the market, and forms of competition in the market. A market structure can have several types of interacting market systems. Different forms of markets are a feature of capitalism and market socialism, with advocates of state socialism often criticizing markets and aiming to substitute or replace markets with varying degrees of government-directed economic planning. Competition acts as a regulatory mechanism for market systems, with government providing regulations where the market cannot be expected to regulate itself. One example of this is with regards tobuilding codes, which if absent in a purely competition regulated market system, might result inseveral horrific injuries or deaths to be required.
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