Microeconomics is basically a field of economics that studies the behavior of individuals and businesses. They were able to take decisions based on the limited resources. In a nutshell microeconomics defines how we are going to take decisions knowing that we don’t have enough money and time to buy anything or do anything. Microeconomics studies these decisions and behavior that could affect the supply and demands for the goods and their services which controls the prices we pay. It inspects such issues like decisions about what to buy or how much to save. It has effects on how organizations determines how many products to make and what price of the products should be fixed for selling. It is important to know the nature of competitor in market and how it will affects the customer.
Fundamental Aspects of Microeconomics
Supply and Demand:
This is the most important aspects of microeconomics. In many reasons, it involves supply and demand in one form or another form. If we think about a simple example, in winter season because of cold, you are warming the house often in comparison to other season. This causes increase in demand for gas. The gas companies can charge more for the same gas you used to buy in other seasons. Likewise, if oil spills from the tanker, due to weather or any disaster in the middle east often create the temporary gas shortage, which reduce the supply of oil and you have to pay more for oil. This sometime confuses the students when they are searching for microeconomics assignment answer.
Elasticity:
This is used to decide the change in consumer which in turn increases the prices. If the service or goods is elastic, suggested that the demand for the good or the services could be affected by the rise in price. In order to understand, let me give you an example, think of an apple as a good. If the prices of the apple increase, then mostly likely you will change the fruit to another one rather than sticking to the same fruit. The fruit has cheap rates in the market. Every business wants to sell their products that are in demand, so some of the customer they could lose even if they increase the prices of the product.
Opportunity Cost:
Opportunity cost divides how individuals and businesses consider different options. It is basically the value of the best without any alternative. The definition also describes that an idea about the cost of something that is not just its financial but the value of what you did not get.
The Foundation of Microeconomics
1. Scarcity & Economic System
Command / Free Market
Factors of Production (Capital, Land, Labor)
Production Possibility Frontier (Comparative / Absolute Advantage, Opportunity Cost)
2. Supply & Demand
Determinants of Shifters & Double Shift
Elasticity & Midpoint Theory (PED)
Normal, Inferior & Luxury Goods
Complements / Substitutes
Total Revenue
3. Balance & Efficiency
Comparative Statics & Equilibrium
Consumer & Producer Surplus
Circular Flow Model
4. Market Loss
Information Failure (Asymmetric Info, Bounded Rationality, Transaction Cost)
Positive & Negative Externalities (Consumption & Production)
Solutions to Externalities
Deadweight Loss
5. Government Intervention
Public Goods & Common Resources (Exclusion & Rivalry)
Free Riders & Tragedy of the Commons
Coase Theorem
Price Control (Ceiling & Floor)
Regulatory Policies, Taxes & Subsidies
Import & Export of the products.
6. Government Loss
Welfare Effects of Tax
Deadweight Loss Effect of Tax
International Trade (World Price, Tariffs & Quota)
Welfare Effects (Free Trade, Trade Restrictions)
7. Industry Analysis & Cost of Production
Profit Maximization
Costs (Marginal, Average Variable, Average Total, Average Fixed)
Production & Cost
8. Perfect & Monopolistic Competition
Short run Shutdown
Profit & Loss Calculations
Monopoly (Profit Max, Short/Long Run)
Advertising
9. Monopoly
Natural, Resource, Government Monopolies
Deadweight Loss.
Price Discrimination.
Regulation (Marginal Cost Pricing, Average Cost Pricing).
10. Oligopoly
Game Theory & Nash Equilibrium
Competition Policies (Price of the products Maintenance, Predatory Pricing, Tying, Transparent)
Conclusion:
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