Microeconomics is the part of the economy that mainly focuses on individual action in the economy. In this, we study the behaviours of consumers as well as businesses.
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According to the microeconomics theory, consumers’ actions always try to maximise utility, whereas producers aim to maximise profits. The part of microeconomics theory that mainly focuses on individual consumption is always called the consumer theory, whereas the region which covers the output is called the producer theory.
Unlike macroeconomics, which mainly focuses on collective behaviour, microeconomics is the study of an individual entity. So we already understand the meaning of microeconomics. For more information, always seek the best Economics Assignment Help to know more about it. Now let’s understand more about its work.
How does Microeconomics work?
Supply and demand are the two basic things on which microeconomics depends. The model of these two depends upon the producers and consumers; many producers are willing to produce and sell at different prices whereas consumers are eager to purchase at those prices. Sometimes they do not buy due for many reasons.
Demand is the price of the product or service that buyers are willing to buy like the supply is the price of the product or service on which producers are willing to sell.
According to the law of demand & service, if the price of a commodity is higher, then the demand will be lower. By using the curves of goods and services at different price points, economists may know how consumers or producers will respond to a particular set of economic conditions.
The point where the supply curve intersects the demand curve always represents the equilibrium price and quantity. To understand it better, get Economics Assignment Help.
So, we already understand the working of microeconomics. Now we talk about its essential principles.
Important Principles of Micro-Economics
There are mainly seven principles of economics that come under microeconomics.
Supply & Demand
We already discuss this part above.
Consumers never have infinite money to buy something and always have little cash or unlimited choices to spend their money on something. That is where the opportunity cost comes into the picture.
It is a value that someone loses when he/she chooses someone over something. For example, you are going to the office through your vehicle, instead of going through public transport. In this case, you spend your money on gas or petrol. Thus it is a loss that comes under the opportunity cost. To know more about it, take Microeconomics Assignment Help.
It is one of the core concepts in investing & life. When you invest in some stocks, this cost will be defined as the total money you might not earn by buying one asset over another.
In economics, it is forgone investment option minus the expected return from the chosen option, says Todd Soltow, co-founder of Frontier Wealth Management.
Such Costs are used in our daily life. Like each choice has positive and negative sides, so it costs you differently, said Robert Johnson, a professor at Creighton University.
Another example of this cost is when you hold the cash. Get the Microeconomics Assignment Help to know more about it.
Opportunity Cost: Forgone Option – Chosen Option.
Law of Diminishing Marginal Utility
This states that the more product or services a consumer buys at once, the less demand will be for the same product or service. It is also the marginal utility derived from consuming another unit of a good.
According to economists like Dr Marshall, it is defined as the more we have any commodity, the less we want of it as the success unit of such commodity decreases or declines as we consume more of it. Seek the best Economics Assignment Help to understand it better.
There are low – prices of products like wheat and gasoline, whose demand increases, which increases their cost. Common examples of Giffen goods are Bread, wheat & price.
Note: All the Giffen goods are inferior, but not all the inferior goods are Giffen goods.
Practical Example of Such good:
In 2007, economists Nolan Miller & Robert Jensen did an experiment where they studied two provinces in china: Gansu & Hunan. Here human provenance, the stable food was rice, and in Gansu, the regular food was wheat.
Following observations they noticed in the experiment:
- In Hunan province, the behaviour of Giffen was revealed, which said the amount of rice was decreased when the price of rice was reduced through a subsidy.
- In Gansu Provenance, the Giffen behaviour was weaker due to the availability of goods, and the fact was household was so poor that they only consumed stable foods. Seek the best Economics Assignment Help to know more about it.
- Veblen Goods
They are the luxury goods which show your socio-economic statuses like cars, jewellery and even yachts etc., the demand for all these products increases as the prices increases. Such goods are very high quality, which retailers do not sell.
Such goods get their name from the economist Norwegian – American Thorstein Veblen, also known for introducing the concept of conspicuous consumption. Most goods have a downward-sloping demand curve, but consumers’ demand goes down as the price rises.
So these are the basic principles of working in microeconomics. There are others as well, like income & elasticity and Substitution, and the Microeconomics Assignment Help covers all in detail. Now we will talk about its need.
Why is there a need for Microeconomics?
It is a very important factor to investors, especially when deciding to put money. Macroeconomic factors like GDP (declining) and interest (rising) always bring down most stocks.
However, the accurate valuation of any stock or industry is dictated by microeconomics principles. For example, right now due to war in Ukraine disrupted the global supply of Russian oil, leading to the high-interest rate of the central bank of the USA, due to which all the stock markets are dropped worldwide. To understand it better, seek the best Microeconomics Assignment Help.
Advantage of Micro-economics
- It gives an accurate picture of the market to investors. Economics can improve the masses’ policies by understanding consumer and producer demands.
- Even corporate help the macroeconomic make better decisions about which products or services need to be produced and prices to charge.
- Indirectly on daily basis, we also use the principles of macroeconomics to choose between the different brands & products while buying anything.
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