Page 9 - DECO401_MICROECONOMIC_THEORY_ENGLISH

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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