Important Theories and Principles of Microeconomics

September 29, 2017 Economics

Micro-Economics is the survey of economic activity as it applies to single houses or good defined groups of persons or economic sectors. It chiefly considers the behavior of these little single units. It is frequently described as a societal scientific discipline because it deals with the behavior of worlds in the context of how society chose what to bring forth, how to bring forth and whom to bring forth to.

What are the different types of resources?

There are three types of resources. They are ;

Natural resources. “ Gifts of nature ”

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Human resources. Peoples, enterprisers.

Manufactured resources. Machinery, tools, etc.

Factors of production.

There are four factors of production. They are ;

Land. Natural resources that are functional in the production procedure.

Labour. The physical and mental endowments of worlds which are functional in bring forthing goods and services.

Capital. Manufactured resources. Eg. Tools, equipment, transit, storage, etc.

Enterprise. The combine of the assorted resources to ease the production of goods and services. A individual who attempts to present new merchandises and productive techniques is known as a hazard taker.

Oppurtunity cost

This is fundamentally the ingestion of one merchandise but normally involves the sacrificing of another. This is under the premise that the state has two fixed goods and they contain fixed resources.

Types of economic systems

There are three categorizations of economic systems. They are ;

Capitalism or free market economic system

Communism or common economic system, and

Assorted economic system.

Capitalist economic system:

This type of economic system allows for the freedom of endeavor and pick. It allows for competition in a market and the authorities plays a small function in this type of economic system. Besides monetary values, in this economic system, are dependent on the market system, that is, demand and supply.

Communism economic system:

This type of economic system does non let for the freedom of endeavor or pick. There is no competition in the market and the authorities plays a major function in the market. They plan and make up one’s mind what and how much of a merchandise to bring forth at a clip.

Demand and Supply

Demand is defined as a agenda which shows the assorted sums of a merchandise which a consumer is willing and able to buy during a certain period of clip. A demand curve can be derived from this rule but it is mostly dependent on certain factors, such as ;

Consumer must hold a fixed income

Quality of merchandise

Monetary value of other goods/products. ( fluctuation )

A demand curve shows the relation between merchandise monetary value and the measure of that merchandise demanded for a period. The curve shows an opposite relationship between monetary values and measure, that is, when monetary values of a merchandise are lowered the measure demanded is increased and frailty versa. This is known as the jurisprudence of demand.

Date: 29th September 2009

Exceeding demand curve

There are some instances where the Torahs of demand are non followed, eg. Giffen ‘s paradox suggests that if the monetary values of a merchandise are increased the demand for it will besides increase. This pertains to basic trade goods. Another instance is the Veblen goods instance which states that the attraction of a merchandise is increased by its increasing monetary value. An illustration of this instance is the buying of an car.

Factors that affect measure of a merchandise supplied

Cost of bring forthing the merchandise

Monetary value of other merchandises ( fluctuation )

Government policies

Equilibrium monetary value

This is the point where the supply and demand curves intersect. This is referred to as the point where the measure of a merchandise demanded is equal to the measure of the merchandise supplied.

Elasticity of demand

Price Elasticity: This refers to the reactivity of measure demanded to alter in monetary value.

Income Elasticity: This refers to the reactivity of measure demanded to a alteration in income.

Date: 6th October 2009

Elasticity Co-efficient

% alteration of measure demanded ? % alteration in monetary value

NB. The monetary value snap co-efficient of demand will ever be a negative figure due to the opposite relationship of jurisprudence of demand.

The grade of reactivity of consumers to a monetary value alteration can change from point to item, hence economic experts measure this reactivity by the construct of monetary value snap. That is the demand for some merchandises is comparatively antiphonal to monetary value alterations.

Interpretation

If a given per centum alteration in monetary value consequences in a larger per centum alteration in measure demanded so we can state that demand is elastic, whereas, if a given per centum alteration in monetary value consequences in a smaller per centum alteration in measure demanded we can state that demand is in-elastic. When a per centum alteration in monetary value is the same as the per centum alteration in measure demanded so we say that demand is unit elastic.

Another manner to find if demand is elastic or non is by the usage of a entire gross graph. When monetary values and entire gross alteration in opposite waies demand is said to be elastic. Conversely, when monetary values and entire gross alteration in the same way demand is in-elastic. When there is the same alteration in measure demanded and monetary values so it is said to be unit elastic.

Date: 13th October 2009

Utility

Utility is satisfaction one gets from a service or a merchandise.

Budget line

Line demoing goods which consumer can purchase. If there is an addition in income so there is a positive displacement in the place of the budget line. This means that there is an addition in the sum of a merchandise which a consumer can buy. Conversely if there is a lessening in income so there will be a negative displacement in the place of the budget line. This means that there is a lessening in the sum of a merchandise a consumer can purchase.

Date: 3rd November 2009

Equilibrium occurs where fringy cost peers fringy gross.

Market construction

Market construction refers to the type of competition which exists among houses in a peculiar industry. On one terminal there is perfect competition where the market is big, ie, there is a big figure of consumers. The merchandise produced in this market is homogenous, that is they are indistinguishable. There are a big figure of providers in this market and any consumer is free to carry on concern with any Sellerss in the market.

On the other terminal there is no competition and between these two extremes there are oligopoly and monopolistic ( imperfect competition ) structures.

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