Importance of Microeconomics in Business Decision Making
Posted inMicroeconomics

Importance of Microeconomics in Business Decision Making – Microeconomics | Management Notes

Importance of Microeconomics in Business Decision Making

Importance of Microeconomics in Business Decision Making: Microeconomics plays an important role in business decision making. It helps the business managers in making production plans and trade decisions. It provides an analytical tool to examine the market mechanisms and helps business firms to take decision about their production and pricing policies.

The following are the points that represent the importance of microeconomics in business decision making.

a) Optimal resource utilization

Microeconomics tells how productive resources are allocated in the production of various goods and services as productive resources are scarce in the economy. It also helps to find out, what to produce, how much to produce, and for whom to produce.

Limitations of Microeconomics
Posted inMicroeconomics

Limitations of Microeconomics – Microeconomics | Management Notes

Limitations of Microeconomics

Microeconomics is the branch of economics that deals with the study of how individual households and firms make decisions and how they interact in markets. Microeconomics studies principles, problems, and policies concerning the optimum allocation of resources with maximum satisfaction. Microeconomics plays a very important role in the study of economic theory.

Besides its importance it has certain limitations which are as follows:

  1. Wrong conclusions
  2. Static
  3. Unrealistic assumptions
  4. Limited scope
  5. Ignores the role of the government

a) Wrong conclusions

According to the viewpoint of macroeconomics, the conclusions drawn from the study of microeconomics in many cases are not valid.Microeconomics has often been proven to be misleading in many ways. Due to its focus on the individual, what is applicable to an individual may not be applicable to economies. The economic approach involves many generalizations and inferences based on certain circumstances and conditions. Often, these generalizations lead to a misunderstanding of the economic situation. As a result, wrong conclusions are drawn.

Importance of Microeconomics
Posted inMicroeconomics

Importance of Microeconomics – 6 Major Importance of Microeconomics | Explained in Detail

Importance of Microeconomics

Microeconomics is the branch of economics that deals with the study of how individual households and firms make decisions and how they interact in markets.

Microeconomics studies principles, problems, and policies concerning the optimum allocation of resources with maximum satisfaction.

The study of microeconomics takes place at the level of individual markets, industries, or sectors rather than at the level of the national economy as a whole.

Microeconomics attempts to analyze how markets allocate limited resources across alternative uses and establish relative prices for goods and services.

Elasticity - Very Short Questions
Posted inMicroeconomics

Elasticity – Very Short Questions | Introductory Microeconomics

Elasticity of demand:
The elasticity of demand is the measure of responsiveness of demand for a commodity to the change in any of its determinants like price of the same commodity,price of the related commodity,income of the consumer,etc.

Types of elasticity of demand:
There are three types of elasticity of demand.They are:

  • Price elasticity of demand(Ep)
  • Income elasticity of demand(Ey)
  • Cross elasticity of demand(Ec)

Price elasticity of demand:
Price elasticity of demand is the measure of the degree of responsiveness of quantity demanded for a commodity to the change in its price.

Types of price elasticity of demand:
The types of price elasticity of demand are as follows:

  • Perfectly elastic demanded(Ep=infinity)
  • Relatively elastic demand(Ep>1)
  • Unitary elastic demand(Ep=1)
  • Relatively inelastic demand(Ep<1)
  • Perfectly inelastic demand(Ep=0)

Four determinants of price elasticity of demand:
The main determinants of price elasticity of demand are as follows:

  • Nature of commodity
  • Substitute
  • Goods having several uses
  • Income of the consumer

Interdependence between Microeconomics and Macroeconomics
Posted inMacroeconomics Microeconomics

Interdependence between Microeconomics and Macroeconomics – Economics | Management Notes

Interdependence between Microeconomics and Macroeconomics

Macroeconomic theory has a foundation in microeconomic theory and microeconomic theory has a foundation in macroeconomic theory. Microeconomics and macroeconomics are just like the two sides of the same coin.

We cannot analyze individual behavior without the assumption to aggregate. And likewise aggregate cannot be effective unless individual variables are kept under consideration.

Microeconomics is the study of individual parts of the economy whereas macroeconomics is the study of the economy as a whole. But, these two approaches are not competitive but complementary to each other.

Movement Along Demand Curve and shift of Demand Curve
Posted inMicroeconomics

Movement along Demand Curve and Shifts of Demand Curve | Microeconomics

Movement along Demand Curve and Shifts of Demand Curve

Movement along Demand Curve and Shifts of Demand Curve

➦ The demand curve is a graphic representation of a demand schedule. It is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at any given price.

➦ Demand curves are used to estimate behaviors in competitive markets and are often combined with supply curves to estimate the equilibrium price and the equilibrium quantity of that market.

➦ Movement along the demand curve and shifts of the demand curve are fundamental concepts in economics that describe how changes in various factors affect the quantity demanded of a good or service and, consequently, its price and the overall market equilibrium.

Difference Between Microeconomics and Macroeconomics
Posted inMacroeconomics Microeconomics

Difference Between Microeconomics and Macroeconomics – Economics | Management Notes

Difference Between Microeconomics and Macroeconomics

Microeconomics

Microeconomics is the study of the behavior of individuals and firms related to making decisions regarding the allocation of scarce resources and the interactions between these individuals and firms. The goal of microeconomics is to understand market mechanisms that determine relative prices among goods and services and allocate limited resources among alternative uses.

In microeconomics, the conditions under which free markets facilitate the allocation of resources are explained. The study also focuses on market failure, where markets do not produce efficient outcomes. It analyzes the economy from the bottom up.

Microeconomics, then, attempts to understand human behavior and the allocation of resources. It does not decide what changes are taking place in the market, rather, it explains why those changes are taking place.

In microeconomics, the key purpose is to identify ways for companies to maximize production and capacity, so they can lower their prices and compete in their industry. Many microeconomics principles can be found in financial statements.