INTRODUCTION TO MICROECONOMICS

 

 Learning Contents:                                                            

·         Understanding  the Meaning of  Micro Economics

·         Vital Components of Micro Economics

·         Features of Micro Economics

·         Decisions Involved in Micro Economics  

     

      Economics is a broad field of study which can be divided into two subparts a. Microeconomics b. Macroeconomics. A brief description of microeconomics is mentioned below.


   Micro Economics:  

In simple words, the term micro means small and economics is the study of making choices or making rational decisions in situations of scarcity so microeconomics deals with economic problems (or economic issues) at the level of an individual like a consumer, firm, market, etc. Decisions such as consumer decisions, firm decisions, etc. explained below would reveal a better understanding of Microeconomics.

Scope or Vital Components of Micro Economics

1. Theory of Consumer Behavior or Theory of Demand:

Consumer theory is the study of how people decide to spend their money based on their individual preferences and budget constraints. It analyses how a consumer allocates his limited income to different uses so as to maximize his satisfaction.

2. Theory of Producer Behavior:

It analyses how a producer decides what goods or services to be produced and how much? What inputs and their combination to be used for the production of goods and services? The producer focuses on maximization of profits keeping its cost low.

3. Theory of Price:

It analyses how prices of goods and services are determined in the commodity market and how the price of factors of production are decided in the factor market in other words, we can say that how much to be paid for different factors of production?

Features of Micro Economics

1. Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses, etc.  

2. Microeconomics studies the behavior of individual households and firms in making decisions on the allocation of limited resources.

3. It aims to determine the price of a commodity or factors of production. It is also called the Theory of Price.

4. It assumes all the macro variables to be constant, i.e., it assumes that general price level will remain constant if we determine the price in the individual market.

     Decisions Involved in Micro Economics

Consumer Decisions: What determines a consumer to spend his given income on the purchase of different goods and services? What combination of goods and services will best fit their needs and wants, given the budget, they have to spend? How much to save for the future, or whether to borrow to spend for more needs?  

Firm Decisions: What determines a firm to produce what and in how much quantity? How to decide the price of their product? How much profit is to be saved or distributed among the workers? When will a firm decide to expand, downsize, or even close? Both consumers, as well as firms, take the opportunity cost of their actions into account when making their decisions.

Microeconomics is the study of how individuals and businesses make choices regarding the best use of limited resources or means.   

                 Multiple Choice Questions:

 1. Microeconomics studies the economic problem

      a. At the level of an individual.

      b. At the level of the economy as a whole.

      c. Both a. and b.

      2.  Which of the following are the different components of  MicroEconomics?

       a. Theory of Consumer Behavior or Theory of Demand

       b. Theory of Producer Behavior

       c. Theory of Price

      d. All of these

      3. Which of the following falls under Micro Economics?

      a. National Income

      b. General Price Level

      c. Factor Pricing

      d. National Savings and Investment

 

Answers

1. a    2. d    3. c

                  







    






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