An introduction to the basic theory of microeconomics

This implies that there are many buyers and sellers in the market and none of them have the capacity to significantly influence prices of goods and services. This is studied in the field of collective action and public choice theory. That is, since the budget constraint is both bounded and closed, a solution to the utility maximization problem exists.

Production uses resources to create a good or service that is suitable for use, gift -giving in a gift economyor exchange in a market economy. Different forms of markets are a feature of capitalismand advocates of socialism often criticize markets and aim to substitute markets with economic planning to varying degrees.

Infosys provides its clients with on-sight as well as off-sight IT service and support. Economics is thus a social science which studies following: This is crux of the subject Microeconomics.

Demand and Price, Demand and Income, Demand and price of related goods, Supply and Price, relationship between variable factors of production and the output in the short run, Impact of change in variable factors of the cost of production of a firm in the short run etc.

Quite often, a sophisticated analysis is required to understand the demand-supply equation of a good model. In this case the issue of allocation and management of resources at the disposal of Infosys for maxisimising the gains or profit for the company is a Microeconomic issue while the issue of fluctation in the value of USD, Euro etc is an outcome of changes in the macroeconomic variables like inflation, balance of payment, GDP growth rate etc and is thus a macroeconomic issue which is beyond the control of the company.

Similarly, microeconomic theory of demand,supply etc helps in understanding the exchange rate determination process in the foreign exchange market. Macroeconomic theory explains and deals with the economic environment which an individuals firms, industry, household etc face or encounter.

Some economists define production broadly as all economic activity other than consumption. This model of microeconomic theory is referred to as revealed preference theory. In such cases, economists may attempt to find policies that avoid waste, either directly by government control, indirectly by regulation that induces market participants to act in a manner consistent with optimal welfare, or by creating " missing markets " to enable efficient trading where none had previously existed.

Importance and Significance of Microeconomics The study of Microeconomic theory helps in following: It is at this point that economists make The technical assumption that preferences are locally non-satiated. Microeconomic theory assumes full employment in an economy.

The utility maximization problem is a constrained optimization problem in which an individual seeks to maximize utility subject to a budget constraint. On the other hand, Macroeconomics studies the economic behavior of firms, industries, household consumers etc at an aggregate level.

Demand Forecasting - The theory of Demand and Demand analysis, elasticity of demand etc help in understanding and predicting demand of a product.

Points for a wrong answer: The theory also helps in determining the point of cost minimization for a firm Understanding Consumer Behaviour - The study of Marginal Utility theory, Revealed Preference Hypothesis, Consumer Indifferance curves etc give useful insight into consumer behaviour and thus help in understanding and predicting the consumer behaviour in varied market situations.

In order to manage the risk and uncertainity associted with the earnings flow, the Infosys Technologies can use hedging techniques. It discusses how given resources can be allocated for production in order to ensure maximization of profit or minimization of cost for a firm.


Let us further assume that this limited resource is the income of your father earned on monthly basis. It focuses on broader economic issues like business cycles, inlation, deflation, stagflation, issues related to economic growth and development,national income, employment, money and monetary policy, fiscal policy etc.This section provides an introduction to microeconomics.

Don't show me this again. Welcome! This is one of over 2, courses on OCW. Introduction and Basic Principles Welcome to your first week in Microeconomics Principles! As you will quickly see, the things you learn in this class will probably help you see the world in a different way.

Microeconomic theory does not study the economy as a whole and instead studies the individuals and their gain maximizing behaviour in any economy.

Microeconomics studies and analyzes individual (human being, household, firm, industry etc) behaviour with respect to issues like production, consumption, distribution, price determination etc.

Microeconomics also deals with the effects of economic policies (such as changing taxation levels) on the aforementioned aspects of the economy.

Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon microfoundations—i.e.

based upon basic assumptions about micro-level behavior. The course deals with the basic concepts of Microeconomics. It also covers the central problems of an economy, Theory of Demand, Elasticity of Demand, Cross Elasticity of Demand and all the other factors that are related to Economy.

Chapter 1 Introduction to economic methods A traditional de nition of economics, advocated by Lionel Robbins, says that Eco-nomics is the science which studies human behavior as.

An introduction to the basic theory of microeconomics
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