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Economics is the study of a group of factors that determine production, consumption and distribution of scarce resources in an economy. It is the perfect blend between arts and science, embedding mathematical equations in economic theories and proposing models relevant to welfare of the economy as a whole. It is branched into two:
There are other branches too like Development economics, Gender economics, Environmental economics, Welfare Economics, etc. but the two most essential classifications that emphasises on the functioning of the economy and its behaviour is strongly prioritized while pigeonholing economics. We here, will be dealing with the first branch, Microeconomics.
Microeconomics is all about individual behaviour and their repercussions on the economy as a whole. This lays into consideration the rationale behind individual choices and allied decision making. There can be two sides to the theory:
On this side, the producers’ behaviour plays the pivotal role. They need to make important decisions like how much to produce and how much to sell, what price to charge per unit of the good produced such that there will be no accumulation of inventory?
It aims at finding out the reservation price of consumers which is the maximum that the consumer is willing to pay for that good and sell the good at that price.
This leads to supply decisions in the economy which is the reason behind availability and unavailability of some goods and services.
This is the buyers’ side of the theory of Microeconomics. The subject deals with the behaviour of consumers of the goods produced in the economy. It tends to study the logic that the buyers envision before buying a certain good in a certain quantity.
In this side of the theory, budget of the consumers allows them to choose some of the goods out of everything available. This acts as the constraint imposing restrictions on the consumers and is hence often referred to as ‘budget constraint’.
The consumers who are rational individuals end up choosing optimal amounts of the goods available, such that their utilities could be maximised.
Besides, their thought process is largely guided by the pricing patterns as developed by the producers who again base their decision on the consumers’ behaviour. So this eventually leads to a circular flow in the economy which has been summed up below:
In a nutshell, this gives the basic idea of what goes on in an economy. Beginning with producers, they engage in productive activities employing workers. These workers are compensated for their hard work through hourly or monthly wages which could be soured down from the profits made while selling the produced good to the consumers.
Now assuming zero unemployment, it is the workers and their family who end up consuming the goods, bought from different producers who again pay these workers their income, i.e., the wages. So this is how goods move back to where it originated from and so does money, in a circular way.
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The above theories were simpler versions of highly complicated stuff, inculcated in you at your schools and colleges. It is a petty demonstration of our highly student-friendly services intended at providing help to all serious students.
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