A Simple Introduction To Microeconomics

The term microeconomics is deduced from the Greek word ‘mikros,’ meaning “small.” According to Prof. K. E. Boulding. “Microeconomics deals with the study of individual enterprises, particular homes, individual price, stipend, income, individual diligence, and particular goods.”

Microeconomics is that branch of economics that studies economic problems (or economic issues) relating to individual economic units like a consumer or a patron.

What is Microeconomics?

Economics is a subject matter that focuses on the rational operation of scarce resources like how our economic earnings are maximised at the micro and macro positions. The subject matter of Economics has been divided into two corridors – microeconomics and macroeconomics. In microeconomics, we study the economic actions of individuals, firms, or assiduity in the simple national economy. We substantially study the following in microeconomics-

• Product pricing
• Consumer Gestalt
• Factor pricing
• Economic condition of a section of the people
• Study of enterprises
• Position of assiduity

When economic problems or issues are studied considering small economic units like an individual consumer, or an individual patron, we are dealing with microeconomics. At the position of an individual economic unit (consumer or a patron), the profitable introductory problem is the choice problem related to the allocation of scarce coffers to indispensable uses.

A consumer allocates his income to the purchase of different goods and services. He’s to maximise his satisfaction. Economists have formulated theories or a set of principles describing consumer behaviour called theory of consumer actions or theory of demand. Demand for goods and services and consumer’s choice on the allocation of his income to different uses are the major issues that we study in the theory of consumer gestalt. It’s an important element of microeconomics.

A producer is another small profitable unit. He’s also brazened with the problem of choice. He’s to choose

(1) combination of inputs he should use, and

(2) the commodity he should produce. He’s to allocate his coffers in a manner that maximises his gains.

Factors of Microeconomics

Studying producer’s gestalt on the allocation of resources takes us to the area of product theory and the proposition of force. Theory of producer behaviour or theory of supply is another important element of microeconomics.

Studying the theory of demand (relating to consumer’s geste) and the theory of supply (relating to producer’s geste), we cannot ignore studying the market for goods and services (called commodity request) and request for factors of product, like labour and capital (called factor request). Microeconomics studies how prices of goods and services are determined in the factor request. Propositions that explain market price determination are known as price theories. These are other important factors of microeconomics.

• Theory of consumer behaviour: This theory helps a consumer allocate his income to different uses to maximise his satisfaction.
• Theory of producer behaviour- it analyzes how a producer exercises his choice on different inputs, decides what to produce, and how important. The main focus of the producer is the maximisation of profit.
• Theory of price-it studies how prices of goods are determined in the commodity request and how prices of factors of the product are determined in the factor market.

Significance of Microeconomics

Following are some of the reasons why studying microeconomics is important:

• To understand the working of frugality
• Price determination and allocation of resources
• Helpful in assaying and framing economic programs
• Optimum application of factor of product
• Linear programming
• Predicting
• Helpful to directorial decision making
• Base of well-being economics
• Field of transnational trade

Dimension of Microeconomics

• Theory of product pricing- request forces of supply and demand calculate the cost of a single commodity. Microeconomics deals with the demand analysis, i.e., supply analysis and individual consumer gestalt.
• Theory of factor pricing- in microeconomics, capital, land, entrepreneur, and labour are the factors that contribute to the production process. Microeconomics helps calculate the various factor prices for land, labour, entrepreneur, and capital in interest, rent, stipend, and profit independently.
• Theory of economic welfare: The theory of weakness principally deals with effectiveness in distributing the resources. Effectiveness in the distribution of resources is attained and results in fulfilling the consumers’ satisfaction.

What are the central problems of an economy?

An economic problem is defined as a challenge of decision-making that arises from a scarcity of resources. It emerges because humans have limitless needs but finite resources to satisfy them. As a result, meeting all human demands with limited resources is difficult. The causes of the central problems of an economy are as follows:

• Scarcity of resources
• Unlimited Human Wants
• Alternative Uses

What is the production possibility frontier?

The production possibility frontier (PPF) is a graph that represents the different production possibilities of 2 goods when the available resources are fixed. The production of one good could only be raised by compromising the manufacture of that other commodity. It is also known as the product transformation curve or production possibility curve.

Conclusion

Microeconomics is a special field of economic study that focuses on how individual human activities and economic actions diverge the value of different goods. This branch of economics focuses on how opinions made by individuals, homes, or companies affect the value of services and goods. Economic gestalt displayed by individuals, homes, or enterprises has several implications: how a product is perceived, the failure, and how profitable coffers are distributed.