Economics: Microeconomics
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TEREEconomics: Microeconomics
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TEREEconomics
Economics is a social science concerned with the production, distribution, and consumption of goods
and services. It studies how individuals, businesses, governments, and nations make choices about how
to allocate resources.
Economics is the study of how people allocate scarce resources for production, distribution, and
consumption, both individually and collectively.
Microeconomics
Microeconomics focuses on how individual consumers and firm make decisions; these individuals can
be a single person, a household, a business/organization or a government agency.
Microeconomics tries to explain how and why different goods are valued differently, how
individuals make financial decisions, and how individuals best trade, coordinate and cooperate with one
another. Microeconomics' topics range from the dynamics of supply and demand to the efficiency and
costs associated with producing goods and services; they also include how labor is divided and
allocated, uncertainty, risk, and strategic game theory.
Macroeconomics
Macroeconomics is a branch of economics that studies how an overall economy—the market systems
that operate on a large scale—behaves. Macroeconomics studies economy-wide phenomena such
as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and
changes in unemployment.
Macroeconomics deals with the performance, structure, and behavior of the entire economy, in
contrast to microeconomics, which is more focused on the choices made by individual actors in the
economy (like people, households, industries, etc.).
Theory
Economic theory is a broad concept for the explanation and understanding of the movement of goods in
a market. Theoretical economic concepts typically have scientific backing or studies to prove or
disprove a stated hypothesis. National governments also have an interest in theories of economics.
Politicians rely on studies of government spending, tax collections, money supply, and consumer
spending data to make laws or set policy. Different economic theories exist that focus on different
aspects of government policy regarding economics.
It try to explain economic phenomena, to interpret why and how the economy behaves and what is
the best to solution - how to influence or to solve the economic phenomena. They are comprehensive
system of assumptions, hypotheses, definitions and instructions what should be done in a certain
economic situation. In principle, the approach to economic theory is divided into positive and
normative.
Major Economic Theories
Classical economic theory
Keynesian theory
Monetarism
New Classical theory
New Keynesian theory
The Five Characteristics of Microeconomics
1. Nature of Analysis
-In micro economics, the behaviour of individual consumers and producers in detail is analyzed. It is study
of subject matter from particular to general.
2.Method
-Micro economics divides the economy into various small units and every unit is analyzed in detail. It is a
slicing method
3. Scope
-Micro economic analysis involves product pricing, factor pricing and theory of welfare.
4. Application
-Both theoretically and practically, micro economics is useful in formulating various policies, resource
allocation, public finance, international trade, etc.
5. Nature of Assumptions
-Assumption of Ceteris Paribus is always made in every micro economic theory. It means is applicable only
when 'other things being same'.
Three Types of Model in Economics
Classical Economic Model
The law of demand and the law of supply are represented in one very commonly used economic model: the
classical model. The law of demand states with all other factors remaining unchanged, the quantity of a
product or service that is demanded will increase when the price has decreased.
The Production Possibility Frontier Model
Another important economic model is the production possibility frontier(PPF):a curve that depicts maximum
productivity likelihood for two or more products, with a specific set of inputs, such as technology, labor, or
capital.
Circular Flow Diagram
Economic model used to show the flow of the factors of production and goods and services through the
economy.