This article will define what the term “microeconomics” is. We will briefly explain examples of micro economics and what the term means in relation to economics. Finally, we will give some examples of microeconomics.
According to Investopedia, microeconomics is the social science that studies the implications of incentives and decisions. Specifically, it deals with how those affect the utilization and distribution of resources.
Microeconomics reveals how and why different goods have diverse values, examples of micro economics include how individuals and businesses behave and gain from efficient production and exchange and how individuals best correlate and work well with one another. Generally, microeconomics provides a more accurate and detailed understanding than macroeconomics.
What Is Microeconomics And Its Examples?
Microeconomics is concerned with prices and production in single markets and the interaction between different markets. We already discussed Differences Between Micro and Macro Economics of which Similarities Between Micro and Macro Economics can be noticed. But remember Micro economics looks at the decisions of individuals and organizations to allocate resources of production, exchange, and consumption.
Here are some examples of microeconomics
The best example of a microeconomic topic includes;
How demand for goods is influence income, preference, prices, and factors such as expectations. Demand refers to a consumer’s willingness to buy goods and services and the desire to pay for the same is an example of micro economics.
How do producers decide to gain access to markets, scale production and eventually get out of markets? Supply refers to an economic term that entails the quantity of a particular product or service that suppliers are willing and able to offer consumers at a certain price for a specific stipulated time frame according to examples of micro economics.
How individual persons, households, and companies react to the price of goods and how they eventually influence it with their demand and supply.
This is how demand and supply react to change. For example, when a family demands less of a good whose price goes up and opts for the alternate substitute. Let’s say a family that enjoys Irish potatoes for breakfast can substitute for sweet potatoes in an event where the price of the former rises.
This is where individuals and firms based on the availability of scarce resources opt for one option over the other. This is because they cannot do both. For example, a person decides to start a business over going to college because he or she neither has the money nor time to do both.
Competitive advantage, according to Investopedia, “refers to factors that allow a company to produce goods or services better or more cheaply than its rivals. These factors allow the productive entity to generate more sales or superior margins compared to its market rivals.” Competitive advantage, therefore, an example of micro economics is a business attribute that gives a business entity leeway to outperform its competitors.
Competitive advantage comprises access to natural resources that are not made available to all competitors, access to new technology, highly skilled human resource or labor, ability to produce products at a lower cost than other players in the business (Chaharbaghi and Lynch, 1999).
This is where needs, perception, and information shape consumer choices. Consumer choice entails the deliberate decisions that consumers of a variety of products and services make. It refers to how consumers decide which products they will buy and consume over a period of time (Salvatore, 2008).
Productivity refers to the measure of economic performance that makes a comparison between the number of goods and services produced against the number of inputs used in the production of the same goods and services (www.bls.gov). “Economic productivity is the value of output obtained with one unit of input.” (Economic Web Institute) For example, if an hour, an individual worker produces an output of 2 units whose cost is $20, then the productivity of the worker in question, is $40.
Welfare economics, according to Britannica, is a “branch of economics that seeks to evaluate economic policies in terms of their effects on the well-being of the community.” It looks at the two types of welfare. Individual welfare includes happiness (as in, rating one’s happiness), country comparisons, and collective welfare. It also looks at the efficient allocation of resources. For example, the community development fund (CDF) of Zambia is meant to benefit almost all residents of a constituency.
Information economics entails the impact information and information systems have on economic and subsequently, economic decisions. It usually involves services utilized to generate and process information that is critical to enabling people to make informed economic decisions.
Encyclopedia Britannica defines consumer confidence as “an economic indicator that measures the degree of optimism that consumers have regarding the overall state of a country’s economy and their own financial situations.” Consumer confidence is shaped by the state of the economy and what is covered and reported in the media. Some of the factors that affect consumer confidence are changes in housing rates, unemployment rate, and inflation.
In conclusion, examples of micro economics show that microeconomics is an essential attribute of the economy. It helps people in economics (economists) study and understand the dynamics of the economy thereby helping them make informed economic decisions.
What is the best example of a microeconomic topic?
For example, microeconomics is used to explain why the demand for a certain product increases when more people have money. When there is low income few people will have the purchasing power to buy a good, hence demand will decrease. Micro economics deals with individual aggregates of the economy such as demand, supply, utility, etc.
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