Question

Summary about the principles of microeconomics

Answer 1

Summary about the principles of Micro Economics

Before we move on to micro economics , let us first  focus our concern in what is Business Economics. Business Economics is the use of economic analysis so that we can take effective utilisation of our resources in the business processes. Business economics is divided into two parts Micro economics and Macro economics.Now micro economics is concerned with the individual behaviour of a consumer or a firm.It is mainly concerned with the decision of the individual firm or unit regarding the utilisation of resources.Meaning micro economics deals with the small group rather than all the combined ones.Micro economics is applied to the internal issues i.e the issues which arise within the organisation like the pricing , product decision etc. .There are two main aspect of micro economics: 1 Demand side and 2 supply side

So at first lets start from the basic of demand which is the core of any business unit. Demand is simply the desire to get something.When we need something ,we place our demand for it.While discusssing demand in economics we need to consider some points i.e 1 when we are saying demand then it always relates to a commodity 2. The individual and market demand can be different for different prices. From Law of demand we can say that when the price of any commodity rises , its quantity demand falls and when price falls the quantity demand rises.That means we can say that there is an inverse relationship between price and quantity demanded.Why so? When price of any commodity falls then we can ay that consumer have some surplus income left with him ,so now he can buy more commodities with it, so we can say quantity demanded rises.But there are few exceptions like in the case of goods of adiction, even if the price rises its quantity demand will not fall. Similarly if the  consumer thinks that the price of any good will rise further in future then also he might purchase it at that high price only. So demand curve is download sloping . There are factors which can cause shift in the demand curve like the income of the consumer, if the income of the consumer will increase then the demand for goods will also increase demand will shift to right and if income decrease demand curve will shift to left. Market demand also depends on population, if population rises demand will rise and demand curve will shift to right.

Now consider the supply side , by supply we mean the product that is being offered for sale at any price. When the supply is being offered from a single seller then we may call it as individual supply and when all the sellers supply the amount of output in the market then we it is called as market supply. From law of supply we can say that when price of any commodity increases its quantity supplied also increases. Reason is when price increases , firm starts producing more amount of ouput so that they can sell the output at that high price.So supply curve is upward rising.

price Rate of supply

5 70

7 90

9 110

so when price is 5 the seller will supply 70 units , when price is 7 the seller will supply 90 units and whne it is 9 then the seller will supply 110 units . So in this way it can be represented.

We get the equilibrium point of a firm at that point where the demand and supply curve of a firm intersects.Now when we are talking about the demand and supply then we must take into consideration regarding the production of any commodity ,its cost , revenue and the market conditions as well . When a firm produces output in the short run with different combinations of input then that level of expected output is called as total product, It is the summation of marginal product. And marginal product is the additional of total product from one extra unit of variable factor employed. These helps a firm to identify whether they should continue their production or not . When total product increases at an increasing rate no producer will like to stop their production . When the average product and marginal product diniminishes and total product increases at adecreasing rate rational producer will produce in this stage .When the Marginal product becomes negative no producer will produce in this stage. So theory of production helps us to determine our total product ,marginal product and the condition suitable for any firm to start or stop their production. When a firm produces something then it has to estimate its probable cost also. So total cost of any firm is his fixed cost and variable cost. Total fixed cost is that part of the total cost which remains fixed with change in quantity and total variable cost which changes directly with change in quantity.Every firm wants that he should keep cost low and produce more so that he can earn maximum profit.In other terms every firm wants to minimise its cost through effective utilisation of its scarce resources.

Now when we are talking about the demand , supply , production, cost then we have to think about the market also where this buying and selling process will take place. WE are having perfect competitve market and monoploy market. Perfect competitve market is a market where there are large number of buyers and sellers and all sellers sells homogenous product. There is a free entry and free exit and all the buyers and sellers have full information about the market. A competitive firm gets its equilibrium where there is maximum profit and the firm is in a state of rest . In realty such markets are rarely found . In case of monoploy market we are having only one seller and different buyers Sometimes the government may reserve some rights to produce goods so monopoly can arise in this situation. Monopoly can also arise through mergers and acquisitions.The objective of monopoly is to maximise the profit , so when the profit maximisation is possible then we can say that the firm is in euilibrium now.

These are the principles of micro economics . Ultimately we can say that resource are scarce but the human desires or wants are unlimted. So through effecctive utilisation of resources the demand of the people can be satisfied and production can be increased and equilibrium could be obtained. All these aspects are covered by the principles of micro economics.