Microeconomics and Various Model of Market Structure - Essay Example

Ali Al-Ansari Microeconomics Spring ECO 202,002 DR. Martin Sabo Microeconomic is an important that helps people to run businesses and home activities in an efficient and orderly way. Understanding microeconomic help economist to address the economic problem of scarcity, allocation of resources and how to create resources out of what is available in the country. Microeconomics deals with the basic theories of demand and supply and how people and firms determine what and how much to produce to ensure that they meet the demand of consumers. Microeconomic, therefore, provides some solution to the economic problem by offering the price mechanism as the sole determinant of prices in the market. Introduction Economics is the study of human activities that are concerned with the efficient use of scarce resources to satisfy human wants (Lindeman 1). Economics is divided into two broad categories, microeconomics and macroeconomics (Economics & Business Economics). Microeconomics deal with economics at a micro level while macroeconomics in a detailed analysis of economics of nations. Microeconomics, therefore, is the study of behaviors of individual and firms in a micro level. Microeconomics analysis shows how households and firms bear with the challenges of scarcity and insatiability of want (Lindeman). Therefore given that resources are scarce people have to adjust or live in certain way that corresponds to their budgets. Microeconomics therefore explains how difference factors interact to bring equilibrium in the market for goods and service where buyers and sellers are satisfied. Therefore, the essay discussed the life situation at a micro level in the real life and how people go about managing their limited incomes. Body Krugman says that economics is about the ordinary business people engage in every day. He outlines what he observes on one Sunday afternoon in the summer of 2003 (Krugman and Wells 1). He says that the town was full of people doing round in shopping malls that stretch over 20 miles. In New Jersey shoppers are absolutely cheerful as they select different variety of foodstuff, electronic and over a hundred thousand distinct and different products. The malls have goods that are affordable for ordinary people in America. This has enabled the producers to prices their products cheaper because they are able to recover the cost of production by selling larger quantities of goods. The population of shoppers demonstrates that there is a ready market for goods and services. The activities of the business are made possible by the acceptability of the price mechanism that determines the prices of goods and services. The price mechanism helps in the determination of prices through the market forces. The law of demand says that prices increase when the demand is high and decreases when the demand falls. Moreover, the forces of demand are influenced by many factors among them the availability of supply. Increase in the supply of goods in the market decreases demand, and a decrease in the supply in the market increases the demand for goods and services (Krugman and Wells 1). Therefore, the prices that buyers accept as the highest they can offer for a good and the minimum price that the supplier can accept to exchange the goods or service is what is referred to a the equilibrium price. The pricing mechanism has taken root, and it has become easier for people to buy and sell without having to spend time negotiating for the equilibrium price. However, not all what is happening in New Jersey that was possible during the colonial period. In 1776, there was none of the shopping mall available in major towns today. During that time, there were few available goods, and people needs were also minimal. However, the current society has added value and have produced differentiated goods and services. This ensures that people make choices of their needs that match what they can absolutely afford. Therefore, people can only buy a portion of products and leave the others for other people. The coordination that makes the New Jersey City with the set of shopping malls which are full of products and customers is what economics entails. It is the economics of household and firms that match so properly that there no single complain of unavailability of products or report of spoilt products as a result of lack of consumers (Krugman and Wells 2). The United State is a free market economy, and it is the role of producers to know how much to produce given the available market within it reach. Moreover, the scarcity of resources and budget constraint make individual has limited choices for only the basic needs and if possible additional non basic products and amenities. Adam Smith talked of the invisible hand to refer to the self-interest that people pursue to meet their need in the society and in so doing they help in interacting the much need drive of microeconomics. According to Smith, personal interest promotes the economics values of individuals, firms and the society. However, personal interest does not always lead to positive feedback or gain to firms and individuals. There are negative externalities as firms produce products. The byproducts such as carbon monoxide and other rare gases pollute the environment and make it inhabitable in the long run. Moreover, the increased use of personal vehicles have brought congestions in our road making people spend more time in traffic than in the productions process. These circumstances are referred to as market failure (Krugman and Wells 3). The scarcity of resources makes people make decisions that maximize their want. The opportunity cost, therefore, go hand in hand with limited resources and choices. Therefore, a person would consider the opportunity cost of engaging in leisure versus being on the job. When the opportunity cost of working for more hours is greater to that of leisure people would consider working than spend time enjoying them. Opportunity cost is defined as the cost of a foregone activity and because people and firms are always faced with competing activities and decision it becomes imperative to determine the best option that maximizes benefits or profits for firms and individuals (Krugman and Wells 7). The theory of opportunity cost dictates that people exploits the best opportunities that make them better off so that they can extend the family basket of goods and services. Increase in income and business improvement ensures that people afford more goods and services that they could not there before. Moreover, making proper and timely decisions increases the living standard as a result of increased earning. The challenge of the problem of scarcity has buffed economist for a long period. However, the flaws of how to manage resources can be addressed by the market system. The free market works efficiently to allocate resources to where they are productively needed in the production of goods and services. Therefore, the economy of households and firm is efficient when personal decisions do not leave other people worse off, but rather in a better position to exploit and use the resources (Mukherjee & Ghose 17). In conclusion, microeconomic also deal with the various model of market structure. There are firms that practice monopoly while others are monopolistic. Firms and individual control market for the supply of services such as medical care and consultancy thus act as a monopoly in their practice. Therefore, life revolves around microeconomic to a large extent and also to a macro level. Works Cited Economics & Business Economics. Web. 26 Feb. 2014. Web. 08 April 2014. < http://www.gla.ac.uk/media/media_279050_en.pdf>. Mukherjee, Samphat., Mukherjee, Mallinath & Ghose, Amitava. Microeconomics. New Delhi: Prentice-Hall of India, 2003. 368. Lindeman, Bruce. Microeconomics. New York: Barrons Educational Series, 2002. 154. Krugman, Paul & Wells, Robin. "Microeconomics." Califonia: Granite Hill Publishers, 2004. 537. Read More