INTRODUCTION
TO MICROECONOMICS
WHY STUDY ECONOMICS
No simple definition of
economics can fully explain all that economists do. However, we can say that
economists study how the economy works and why- as evidenced by such problems as
poverty, unemployment, and inflation- it sometimes works poorly. In fact,
economics can be characterized by the question it seeks to answer.
Economics
is also a way of thinking. Economists approach the study of real-world problems
from the standpoint of certain basic economic principles. They assume that
individuals choose those options that best help them achieve their goals.
Economists also believe that a business seeks to maximize profits and that it
will produce more goods when it can earn greater profits.
Economics
may also be viewed as a collection of concepts about and perspectives on
some of the problems society faces. These concepts and perspectives are derived
from the economic way of thinking.
The reason why we need
to study economics would be practical because everyone makes economic decisions every day. Since 1998, the economy has continuously experienced a decline,
consumers are facing diverse problems such as poverty, public utilities, and even
rights and privilege are in question, thus we must continue to make a choice.
For the past twenty years, professionals were
not concerned about economics during their busy days. Doctors and the like would just work and
enjoy the fruits of their labor. Today, people are getting to be more concerned
about economics. The current economic situation seems to interest not only
professionals but also ordinary civilians and most especially students.
Considering that these people have had no actual background in Economics.
Students from all walks of life have
a different perception about economics especially during their high school days,
economics was thought with simple household chores in their school,
nevertheless, students were taught the same when they enter college. With the existing problem
encountered by most of the economics professors, the author decided to create a
module that would help students find out the importance of economics and
enjoy it during the whole term.
ECONOMICS – is a social
science that is concerned with the proper allocation of scarce resources to
satisfy unlimited human needs and wants.
2 Branches of Economics
Macroeconomics – studies the
aggregate level of economic activity, such as the total level of output, the
level of national income, the total level of employment, and the general price
level for the economy viewed as a whole. It deals with the total private
expenditure, total investment, total government expenditures, and total imports
and exports of goods and services. It
seeks the causes and the cures for unemployment, inflation, and balance of
payments.
Microeconomics – studies of economic
behavior of individual decision-making units such as consumers, resource owners
of business firms. It deals with how an individual consumer spends his income to
maximize satisfaction, how a business firm combines resources or factors of
production to maximize profits and minimize cost, and how the price of each
commodity and each type of resource is determined by demand and supply. It
studies how these individual decisions are affected by different forms of
market organization.
Characteristics of Microeconomics
1.
Microeconomics looks at the decision of individual units. It focuses on the
choices made by individual decision units such as households, producers, and
firms. Resource allocation decisions are made by these individual entities in a
market economy. It is necessary to understand their decisions in order to
understand our economic system.
Among the relevant
questions that can be asked are: how efficiently are we using our resources?
Could we obtain more output from the same resources if we reorganize the ways
we use them?
2. Microeconomics looks
at how prices are determined. It is concerned with how prices are determined in
various types of market structures such as pure competition, monopoly,
monopolistic competition, and oligopoly. Microeconomics is often called,” price
theory”.
Among the relevant
questions that can be asked with regards to these characteristics: should a
monopolist increase his price? Should a producer in an oligopolistic market
lower his price? Can a producer under a purely competitive market increase his
price?
3. Microeconomics is
concerned with social welfare. It also examines the efficiency, relative
desirability, and choice of alternative methods by which resources are utilized
to alleviate scarcity. This branch of microeconomics is referred to as “welfare
economics”.
Among the relevant
questions that can be asked are: is it prudent to build a new bridge or to buy
additional arms for the army? Is it wise to impose price control? Should the
government limit the controlling interests in media?
4. Microeconomics has a
limited focus. Microeconomics is just a part of the economics discipline. It does
not examine the processes or efficiency of allocation in alternative types of
economic systems, such as a socialistic planned economy. Neither does
microeconomics focus on other economic issues, such as the aggregate level of
employment of resources or the rate of inflation. Problems dealing with the
aggregate economy are within the domain of macroeconomics.
5. Microeconomics
develops skills. The study of microeconomics helps to develop a set of useful
and marketable skills.
a.
Microeconomics
helps you develop your logical reasoning.
b.
Microeconomics
will help you develop skills in the construction and use of models. This is one
of the major skills economists offer to the business community.
c.
Microeconomics
employs an optimizing technique that is useful for making decisions in a variety
of situations.
d.
The
concepts studied in microeconomics are
applicable to your personal resource allocation decisions, such as your carrier
choices or financial investments.
Related Topics
·
Introduction of Microeconomics
·
Scarcity
·
Production possibilities
·
Basic Economic Problem
·
Circular
flow of Economic Activity
·
Common
types of Economic System
·
Economic resources
·
Demand supply and markets
·
Demand
·
Supply
·
Elasticity of demand and supply
·
Market
·
Surplus
·
Shortage