Definition of Microeconomics and its Assumptions and Goals (Complete)
Definition of Microeconomics and its Assumptions and Goals (Complete) – In economics, there is the term Microeconomics or Microeconomics, which is a branch of economics studies the behavior of consumers, companies and the determination of market prices and the quantity of input factors, goods and services traded. Microeconomics studies economic variables in a small scope, for example companies and households.
Definition of Microeconomics and its Assumptions and Goals (Complete)
Microeconomics itself studies how individuals use existing resources so that an optimum level of satisfaction can be achieved. Each individual carries out a combination of consumption and production that is being carried out optimally together with the individual others, it will form a balance on a macro scale assuming all other things will remain the same (ceteris paribus). In theory, every individual is carrying out an optimum combination of consumption and production together with other individuals will create balance on a macro scale assuming ceteris paribus.
In contrast, macroeconomics discusses various economic activities as a whole, especially in matters related to growth economy, inflation, unemployment, as well as various interrelated policies in the economy, and the consequences of various government actions in matters the.
Goals of Microeconomics
There is also one goal of microeconomics, namely to analyze markets and the mechanisms that form prices relative nature of products or services, and the allocation of limited resources among many uses alternative. Microeconomics can analyze market failure, namely when the market fails to produce results efficient and explains the various theoretical conditions required by a competitive market perfect.
In the important research field of microeconomics, including discussing general balance equilibrium), market conditions regarding asymmetric information, choices in uncertain situations, as well as various economic applications to game theory. Discussions about product elasticity in market systems have also received attention in microeconomics.
More easily regarding the objectives of microeconomics, namely:
- To analyze the market mechanism which will form relative prices for goods or services, and the allocation by limited resources from the many alternative uses.
- To analyze market failures while producing efficient results explains several theoretical conditions needed in a competitive market perfect.
Assumptions And Definitions
In supply and demand theory, it is generally assumed that the market is a perfectly competitive market. The application is that there are many buyers and sellers in the market, and none of them has the capacity to significantly influence the price of goods or services. However, in reality in various transactions in real life, this assumption turns out to fail, because some individuals have the ability to influence prices. Often, in-depth analysis is needed to understand the supply-demand equation for an item.
Mainstream economics does not assume a priori that markets are preferable to other forms of social organization. In fact, there are many analyzes that have been carried out to discuss various cases of what are called "failures market“, which leads to suboptimal allocation of resources, if viewed from the perspective of certain. Market failure in positive economics (microeconomics) is limited by implementation without mixing the beliefs of economic actors and their theories.
The demand for various commodities by individuals is generally also called the result of the satisfaction maximization process. Interpretation of the relationship between price and quantity of an item given, by giving all one item other services, this kind of arrangement choice will provide happiness and satisfaction for the customers consumer.
The main causes of market failure include:
Monopoly
In other cases of abuse of market power where “a” buyer or seller can have a significant influence on prices. Abuse of market power itself can be reduced by using anti-trust laws.
Externalities
Occurs in cases where “the market does not take into account the effects of economic activity on outsiders or strangers.” In externalities there are positive and negative ones. An example of a positive externality is a public service program for family health on television which can improve public health. Meanwhile, an example of a negative externality is when air pollution occurs in a company. Negative externalities can be overcome by government regulations, taxes, subsidies, or by using rights property in order to force companies or individuals to accept the consequences or impacts of their economic efforts to a certain extent should.
Public Goods
Such as in national defense and public health activities, such as eradicating mosquito nests. If eradicating mosquito nests were left to the private market, fewer nests would likely be eradicated. In providing a good supply of public goods, the state generally uses taxes that require all residents to pay of these public goods (this is related to insufficient knowledge of positive externalities towards third parties and welfare social).
Cases where there is asymmetric information or uncertainty (inefficient information)
This asymmetric information occurs when one party carrying out a transaction has more and better information than the other party. In general, sellers know more about the product than buyers, but this is not always the case in this case. For example, people in the used motorbike business may know where the motorbike has been had an accident, so information like this will definitely not be disclosed to potential buyers.
In the 1970s George Akerlof used the term asymmetric information in his work on The Market for Lemons. Akerlof himself realized that in such a market, the average value of commodities would tend to decrease further, even at very high quality. perfect goodness, because buyers have no way of knowing whether the product they buy will be a "lemon" (a product that misleading).
Scope of Microeconomics
The scope of microeconomics is consumers and producers. In economics, producers and consumers are individuals in every household, community, organization and company. The following is the scope of microeconomics, namely:
- Supply, demand and balance for market prices
- Elasticity of supply and demand.
- Theories of consumer behavior.
- Theories regarding production, costs, producer revenues, and profits.
- Perfect competition market.
- Monopoly market.
- Oligopoly market.
- Monopolistic competition market.
- Request for input.
- Price mechanisms and distribution of income.
Examples of Microeconomics
Examples of microeconomics include:
- Supply and demand.
- Market monopoly.
- Consumer and producer behavior.
- Infrastructure development.
- Market.
- Determining the lowest and highest prices.
- Reception.
- Cost.
That's a little explanation about Definition of Microeconomics and its Assumptions and Goals (Complete), I hope that this can have a benefit for readers. Thank You ?
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