Microeconomics (from the Greek prefix micro - meaning "small") is a branch of economics that studies the behavior of individuals and companies in making decisions about scarce resource allocations and interactions between individuals and companies.
One goal of microeconomics is to analyze market mechanisms that set the relative prices of goods and services and allocate limited resources between alternative uses. Microeconomics shows the condition in which the free market causes the desired allocation. It also analyzes market failures, where markets fail to produce efficient results.
Microeconomics stands opposite to macroeconomics, which involves "the total amount of economic activity, dealing with growth issues, inflation, and unemployment and with national policies relating to these issues". Microeconomics also deals with the effects of economic policy (such as changes in tax rates) on the economic aspects mentioned above. Particularly behind Lucas's critique, many modern macroeconomic theories are built on micro-physics - that is. based on basic assumptions about micro-level behavior.
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Assumptions and definitions
Microeconomic theory usually begins with the study of individuals who maximize rational and utility. For economists, rationality means that an individual has a stable and transitive stable preference.
The technical assumption that a preference relationship is continuous is necessary to ensure the existence of a utility function. Although microeconomic theory can continue without this assumption, it will make comparative statics impossible because there is no guarantee that the resulting utility function will be differentiated.
Microeconomic theory develops by defining a set of competitive budgets that are part of a collection of consumption. It is at this point that economists make technical assumptions that preferences are unsatisfactory locally. Without the assumption of LNS (local non-satiation) there is no guarantee that a rational individual will maximize utility. With the necessary tools and assumptions in place the utility maximization problem (UMP) is developed.
Utility maximization problem is the heart of consumer theory. The utility maximization problem tries to explain axiomatic actions by imposing a rationality axiom on consumer preferences and then mathematically modeling and analyzing the consequences. The problem of utility maximization not only serves as a mathematical foundation of consumer theory but also as a metaphysical explanation. That is, the utility maximization problem is used by economists to not only explain what or how individuals make choices but why individuals make choices too.
The utility maximization problem is a restricted optimization problem in which an individual seeks to maximize utilities subject to budget constraints. Economists use the extreme value theorem to ensure that solutions to utility maximization problems exist. That is, because budget constraints are limited and closed, solutions to utility maximization problems exist. Economists call solutions to utility problems maximizing Walrasian demand function or correspondence.
The issue of utility maximization has so far been developed by taking consumer tastes (ie consumer utilities) as primitives. However, an alternative way to develop microeconomic theory is to take consumer choice as primitive. This model of microeconomic theory is referred to as the theory of revealed preference.
Supply and demand theory usually assumes that the market is very competitive. This implies that there are many buyers and sellers in the market and none of them has the capacity to significantly affect the price of goods and services. In many real-life transactions, that assumption fails because some individual buyers or sellers have the ability to influence prices. Quite often, sophisticated analysis is needed to understand the demand-supply equation of a good model. However, this theory works well in situations that satisfy these assumptions.
The mainstream economy does not consider a priori that the market is preferred over other forms of social organization. In fact, many analyzes are devoted to cases where market failures lead to suboptimal allocation of resources and create deadweight losses. A classic example of the allocation of resources that is not optimal is public goods. In such cases, economists may try to find a policy that avoids waste, either directly by government control, indirectly by regulations that induce market participants to act in a manner consistent with optimal welfare, or by creating a "market that lost "to allow an efficient trade where none existed previously.
It is studied in the area of ​​collective action and the theory of public choice. "Optimal wellbeing" usually takes the Paretian norm, which is a mathematical application of the Kaldor-Hicks method. This can deviate from utilitarian goals to maximize utility because it does not consider the distribution of goods between people. Market failure in a positive (microeconomic) economy is limited in its implications without mixing the economic and theoretical beliefs.
The demand for various commodities by individuals is generally regarded as the result of the process of maximizing utility, with each individual trying to maximize their own utility under budget constraints and a set of given consumption.
Maps Microeconomics
Basic microeconomic concepts
The study of microeconomics involves several key "areas":
Requests, supplies, and equilibrium
Supply and demand is the economic model of pricing in a perfectly competitive market. It concludes that in a perfectly competitive market with no externalities, per unit tax, or price control, the unit price for a particular good is the price at which the quantity demanded by the consumer equals the quantity supplied by the producer. This price produces a stable economic equilibrium.
Measurement of elasticity
Elasticity is a measure of how responsive the economic variables are to changes in other variables. Elasticity can be quantified as the percentage change ratio in one variable by percentage change in another variable, when the variable then has a causal influence on the first. It is a tool for measuring the response of variables, or functions that determine it, to changing the causal variables in a unitless way. Commonly used elasticities include price elasticity of demand, supply price elasticity, income elasticity of demand, substitution elasticity or constant substitution elasticity between the factors of production and the elasticity of intertemporal substitution.
Consumer demand theory
Consumer demand theory links the preference for consumption of goods and services with consumption expenditure; Finally, this relationship between preference and consumption expenditure is used to relate preference to the consumer demand curve. The relationship between personal preference, consumption and the demand curve is one of the most closely studied relationships in economics. This is a way of analyzing how consumers can achieve a balance between preference and expenditure by maximizing the subject of utility for consumer budget constraints.
Production theory
Theory of production is the study of production, or the economic process of turning inputs into outputs. Production uses resources to create goods or services that are suitable for use, gift giving in the gift economy, or exchanges in a market economy. This may include the manufacture, storage, delivery, and packaging. Some economists define widespread production as all economic activity other than consumption. They see any commercial activity other than the final purchase as a form of production.
Production cost
the cost value theory of production states that the price of an object or condition is determined by the amount of resource cost used to make it. Costs can consist of one of the factors of production: labor, capital, land. Technology can be seen as a form of fixed capital (eg crops) or circulating capital (eg intermediate goods).
Opportunity cost
The economic idea of ​​ opportunity cost is closely related to the idea of ​​time constraints. You can only do one thing at a time, which means, inevitably, you always submit other things.
The opportunity cost of any activity is the value of the next best alternative you may have made. The opportunity cost depends only on the next best alternative value. It does not matter whether you have 5 alternatives or 5,000.
Opportunity costs can tell you when not does something and when to do something. For example, you might like waffles, but you prefer chocolate. If someone offers you just a waffle, you will pick it up. But if you offer waffles or chocolates, you will take chocolate. The opportunity cost of waffle meal is sacrificing the opportunity to eat chocolate. Since the cost of not eating chocolate is higher than the benefits of eating waffles, it does not make sense to choose a waffle. Of course, if you choose chocolate, you are still faced with the opportunity cost to give up having a waffle. But you are willing to do it because the cost of waffle opportunities is lower than the benefits of chocolate. The opportunity cost is an unavoidable obstacle to behavior because you have to decide what is best and give up on the next best alternative.
Market structure
market structure can have multiple types of interacting market systems. The various forms of the market are the features of capitalism, and the advocates of socialism often criticize the market and aim to replace the market with economic planning to various levels. Competition is the mechanism of regulating the market system.
Some market examples:
- commodity market
- the insurance market
- bond market
- the energy market
- flea market
- debt market
- the stock market
- online auctions
- the media exchange market
- the real-estate market.
Perfect competition
Perfect competition is a situation where many small companies that produce identical products compete against each other in a particular industry. Perfect competition produces firms that produce socially optimal output levels at the minimum possible unit cost. Companies in perfect competition are "price takers" (they do not have enough market power to profitably raise the price of their goods or services). A good example is the digital market, like eBay, where many different sellers sell similar products to many different buyers.
Incomplete competition
In economic theory, imperfect competition is a type of market structure that shows some but not all features of a competitive market.
Monopolistic Competition
Monopolistic competition is a situation where many companies with slightly different products compete. Production costs are above what perfectly competitive companies can achieve, but society benefits from product differentiation. Examples of industries with similar market structures to monopolistic competition include restaurants, cereals, clothing, shoes, and service industries in major cities.
Monopoly
A monopoly (from the Greek monos ????? (alone or singly) polein ?????? (to sell)) is a market structure in which a market or industry is dominated by a single supplier of a particular good or service. Since monopolies have no competition, they tend to sell goods and services at higher prices and produce below the socially optimal level of output. While not all monopolies are bad, especially in industries where many companies will produce more problems than benefits (ie natural monopolies).
- Natural monopoly: Monopoly in an industry where one producer can produce output at a lower cost than many small producers.
Oligopoly
An oligopoly is a market structure in which the market or industry is dominated by a small number of firms (oligopolists). Oligopoly can create incentives for companies to engage in collusion and form cartels that reduce competition leading to higher prices for consumers and less overall market output. Alternatively, oligopolies can be highly competitive and engage in flamboyant ad campaigns.
- Duopoly: A special case of oligopoly, with only two companies. Game theory can explain behavior in duopoly and oligopoly.
Monopsoni
monopsoni is a market where there is only one buyer and many sellers.
Oligopony
An oligopsoni is a market where there are multiple buyers and many sellers.
Game theory
Game theory is the main method used in the mathematical and business economics to model the competing behavior of interacting agents. The term "game" here implies the study of every strategic interaction between people. Applications include a variety of phenomena and economic approaches, such as auctions, bargains, mergers & amp; acquisition, fair share, duopoly, oligopoly, social networking, agent-based computing economics, general equilibrium, mechanism design, and voting systems, and across vast areas such as experimental economics, behavior economics, information economics, industrial organizations, and political economy.
Labor economy
The labor economy seeks to understand market function and dynamics for wage workers. The labor market works through the interaction of workers and employers. The labor economy looks at the suppliers of workers' services (workers), the demands of worker services (employers), and attempts to understand the patterns of wages, employment and income generated. In economics, labor is a measure of work done by humans. This is conventionally different from other production factors such as land and capital. There are theories that have developed a concept called human capital (referring to the skills that workers possess, not necessarily their actual work), although there are also opposing theories of macroeconomic systems that assume human capital is a contradiction in terms.
Welfare economy
Welfare Economy is a branch of economics that uses microeconomic techniques to evaluate the well-being of the allocation of productive factors such as economic desires and efficiency in an economy, often relative to a competitive general equilibrium. It analyzes social welfare , but is measured, in terms of the economic activities of the individuals who constitute theoretical societies considered. Thus, individuals, with related economic activities, are the basic units for aggregate for social welfare, either from groups, communities, or communities, and there is no "social welfare" other than "welfare" associated with each unit.
The information economy
Economic information or the information economy is a branch of microeconomic theory that studies how information and information systems affect economic and economic decisions. Information has special characteristics. It's easy to make but hard to believe. Easy to spread but difficult to control. It affects many decisions. This particular characteristic (compared to other types of goods) complicates many standard economic theories.
Applied
The applied microeconomics cover a wide range of specialized fields of study, many of which use methods from other fields. Industry organizations examine topics such as entry and exit from companies, innovations, and trademark roles. The labor economy examines wages, jobs, and labor market dynamics. The financial economy examines topics such as optimal portfolio structure, rate of return on capital, econometric analysis of guarantee returns, and corporate financial behavior. The public economy examines the design of tax policies and government spending and the economic impact of this policy (for example, social insurance programs). Political economy examines the role of political institutions in determining policy outcomes. Health economics examines the organization of health care systems, including the role of health care workers and health insurance programs. The educational economy examines the organization's provision of education and its implications for efficiency and equity, including the educational impact on productivity. The urban economy, which examines the challenges faced by cities, such as sprawl, air and water pollution, traffic congestion, and poverty, refers to the areas of geography and urban sociology. Law and economics apply the microeconomic principles for the selection and enforcement of competing legal regimes and their relative efficiency. Economic history examines the evolution of economic and economic institutions, using methods and techniques from the fields of economics, history, geography, sociology, psychology, and political science.
History
The difference between microeconomics and macroeconomics was introduced in 1933 by Norwegian economist Ragnar Frisch (Nobel Prize 1969).
References
Further reading
External links
- X-Lab: Laboratory of Micro-Economic Research and Social Science Collaboration
- Simulations in Microeconomics
- http://media.lanecc.edu/users/martinezp/201/MicroHistory.html - microeconomic brief history
Source of the article : Wikipedia
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