Today's topic :)

Tuesday, 21 February 2012

Micro Economics

Microeconomics is the branch of economics which is concerned with the behavior of the individual economic units or variables, such as individual consumer or a producer or the price of a particular commodity etc.
  • In the book of Adam Smith "The Wealth Of Nations" (1976), he introduced that how prices of individual commodities and that of factors of productions, namely land, labour and capital, are determined.
  • Microeconomics is a microscopic study of the various individual agents of the economy, i.e., individual commodities, firms, industries, households and consumers.
  • It deals with the division of total output among industries, products, and firms, and allocation of resources among competing groups. It considers problems of income distribution. Its interest is in the relative prices of particular goods and services.
  • That means Microeconomics is concerned with specific economics units and a detailed consideration of the behaviour of these individual units. When operating at this level of analysis, the economist figuratively puts an economic unit or very small segments of the economy under the microscope to observe the details of its operation. In microeconomics, we examine the tree, not the forest.

Microeconomics is basically concerned with the market behaviour and allocation of resources. It, thus, seeks to examine the fundamental questions of economic analysis, such as:
  • What goods shall be produced out of given resources, and in what quantities.
  • Who will produce them how.
  • How these goods shall be valued or priced in the exchange process.
  • To whom and how the wealth so produced shall be distributed.
  • How efficiently the resources are allocated for production and consumption in the economic society.
Microeconomics basically deals with individual decision making and problem of resources allocation. It examines, in particular, as to how individual consumers and producers behave and how their behaviour reacts. This helps us in understanding how an economic process determines which goods should be produced, who will produce them, how they will be distributed. Microeconomics, as such, examines the allocation of resources in certain situations involving individuals, groups and society as a whole. But its approach is always specific or non aggregative.