Microeconomics - Term Paper Example

Download file to see previous pages... However, since the buying and selling is common to all participants of economy, therefore microeconomics plays an important role in determining the supply and demand of goods. As this factor is responsible for price fixation of goods and services, the change in supply vs. demand position can lead to change in price. As resources become limited, microeconomics tries to analyze the relationship between market conditions, product prices, as well as the market mechanism which establishes this relationship. Such mechanism has a great role to play in the allocation of resources, in such scenario. Therefore, microeconomics has a significant role in determining the conditions required for a perfect competition. It also studies the conditions which may have led to market failure, when results are not produced efficiently. However, microeconomics can only establish the theoretical conditions, while actually market behavior may be different, sometimes. Accordingly, studies in this field of economy would include decision making ability under uncertain market condition. It also includes the study of market, which may not follow any pattern. This term paper would discuss about the principles of microeconomics, along with its fundamentals, in the following pages. Principles of microeconomics As there is a great relationship between a household and economy; Greek ancestors have correctly named the manager of a household as ‘economy’. Looking at the wider scenario, the household is an economic entity within a larger society. The society must ensure the allocation of funds and jobs to different members, while managing the available limited resources. Therefore the decisions need to be taken, keeping in view certain fundamentals, which are considered as the principles of microeconomics, which help people in making their decisions. Supply and demand In economic terms, demand means willingness, need and ability to purchase certain goods or services. However, desire to purchase may meet the requirement of willingness, but same only cannot generate demand. The purchaser must be able to pay for the specific good or service. The payment method can vary, as sellers except cash, credit cards, deferred payment or lease payments, nowadays. The capacity to purchase the good determines the ability for generating the demand. Readiness to purchase the good, right now, comes after the above two requirements of demand have been met. Once the immediate purchase willingness is confirmed the demand gets generated. (beggs 1) Supply relates to the available quantity of a particular good or service at a point in time, in a particular location. Supply would primarily comprise of two elements. One is the quantity of goods produced by a firm, while other is the combined quantity of same goods produced and offered for sale by different firms, involved in manufacture and trading of that particular item. However, total availability of such goods in market refers to the supply of the same. Supply would relate with the profit to be generated by offering such goods for sale. As companies prefer to sell their products at maximum profit level, this would determine the quantity and quality of goods that the firm can offer at any particular point. Maximum profit is calculated, based on the cost inputs, production costs, marketing costs and other variables. Therefore, all these factors would ultimately determine the supply position a ...Download file to see next pagesRead More