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Microeconomic Theory



                   Notes       1.1  Microeconomics



                               Its meaning

                               The study of economic activities of persons and the small groups of persons is called Microeconomics.
                               According to Prof. Boulding,“This includes the study of particular firms, families, individual prices,
                               labour, income, individual industries and particular things.” This makes important relation in
                               distributing the resources in using particular experiments and analyzing the prices. The main sectors
                               among  the  Microeconomics  are:  The  decision  about  production  balancing  of  firms  and  industries,
                               the wages of particular labour work, rice, tea or car etc. According  to  Ackley—“Microeconomics
                               makes relations with the distribution of resources among competitive groups and distribution of total
                               production of firms and industries. It deals with the prices of particular objects and services.”
                               In fact, as Maurice Dobb said—Microeconomics is a microscopic study of an economy. This is a source
                               of seeing an economy through microscope so that one can know about the movements of producers and
                               individual consumers and the markets of individual objects. In other words, we study co-relations of
                               an individual family, firms and individual industries in Microeconomics. Thus, economics is the study
                               of aggregates.


                               Its Scope

                               “Prices and rate principles, families, firms and industries principles, maximum production and welfare
                               principle are parts of Microeconomics.”  Thus Microeconomics  studies (1) How the resources are
                               distributed in production of objects and services, (2) How these goods and services are distributed
                               among the people, (3) How smoothly they are distributed. While studying the steps of deciding the
                               price of particular goods, Microeconomics observes the total price already given and tries to describe
                               the distribution of those resources for the production of those goods. The distribution of resources for
                               particular goods depends on the prices of production resources of other goods. In other words, the
                               distribution of resources decides, what to produce, how to produce and how much to produce and this
                               depends on prices of goods and services. Thus “Microeconomics is a study of price principle.” How it
                               decides the price of the particular goods such as rice, tea, milk, fans and scooter, etc. How the profits
                               of a particular Industry, rate of interest on a principal amount and wages of labours and the revenue
                               of a particular land are decided and how smoothly the distribution of resources is done among the
                               individual producers and consumers? We explain these problems in brief.
                               Analysis of price determination and allocation of resources are studied in microeconomics in three
                               different conditions (i) Individual consumers  and procedures equilibrium, (ii) Single market
                               equilibrium, (iii) Equilibrium in different types of market. Individual consumers and producers cannot
                               affect prices of those products which they buy and sell. A consumer has to face the given prices and
                               he purchases only that quantity of the product which gives him maximum utility. For an individual
                               producer, the input and output prices are given and he produces only that quantity of goods which
                               gives him maximum profit. In markets, prices and quantities of purchasing and selling determine the
                               function of buyers and sellers. From individual demand and supply curve total demand and supply
                               curve are made. Equilibrium between total demand and supply curve determines the price and quantity
                               of purchasing and selling in markets. It applies to both product and factors markets. But relating the
                               assumption of perfect competition market, this analysis can be extended to monopoly, oligopoly and
                               monopolistic competition markets.




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