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1. Nature and scope of Micro Economics
Micro economics is that branch of economics which analyzes the market
behavior of individual consumers and firms to understand the decisionmaking
process of firms and households.
Microeconomics deals with economics decisions made at individual level.
The individual can be a consumer, the producer/firm, or a household.
"Microeconomics deals with the decision making and market
results of consumers and firms".
In detail the microeconomics deals with decisions at
1. Consumption: The consumer aims at maximizing consumer
satisfaction, he has to optimize his performance within the
limitations of income and prices
2. Production: The producer has to coordinate inputs to produce
goods so that the out put is maximized and the cost is
minimized. The producer has to optimize, costs and factors.
3. Exchange: The buyers and sellers meet at the market. They
have conflicting interests. Depending on the market the prices
are determined which fulfill the consumer objectives as well
as the firm objectives.
4. Distribution: Distribution deals with determinations of factor
prices. It is important in the determinations of factor incomes/
household incomes.
Micro economic theories help in the designing the models of demand
forecasting, consumer behavior models, pricing and determination of factor
prices.
Most micro economic theories are partial equilibriums which provide in
depth details of a specific economic activity.
Economic equilibrium
Equilibrium is a state of rest where there is no urge to change. The
equilibrium is attained by a set of two or more economic forces.
At equilibrium, the objectives of economic activity are achieved.
Dr.Ranga Sai
First Year BMM Semester I, Economics (w.e.f. June 2009) 6
• Consumer equilibrium – consumer satisfaction is maximized;
• Producers’ equilibrium – the cost are minimized
• Market equilibrium – the price and quantity are so determined that are
acceptable to both buyers and sellers.
Economic equilibrium is not permanent. The equilibrium is valid as long as
the factors determining it remain unchanged. Any change in any one of the
factor, the equilibrium will undergo a change.
Static equilibrium: In economics static equilibrium refers to rigid models
which do not accept more or changing variables. Subject to the given
set of variables, the equilibrium is attained. Such equilibrium may not
have large policy applications;
e.g. circular flow of incomes- it explains the relationship between various
economic activities
Dynamic equilibrium: It is an advanced economic model which gives
relationships between several economic variables and can also
accommodate change. Such economic models have large application in
policy making
e.g. input-output matrix of national income accounting provide relationships
as well as determinants at each level of economic activity. The output
of one sector becomes the input for the other sector. This is an
advanced model of explaining circular flow of incomes. .
Micro economics is that branch of economics which analyzes the market
behavior of individual consumers and firms to understand the decisionmaking
process of firms and households.
Microeconomics deals with economics decisions made at individual level.
The individual can be a consumer, the producer/firm, or a household.
"Microeconomics deals with the decision making and market
results of consumers and firms".
In detail the microeconomics deals with decisions at
1. Consumption: The consumer aims at maximizing consumer
satisfaction, he has to optimize his performance within the
limitations of income and prices
2. Production: The producer has to coordinate inputs to produce
goods so that the out put is maximized and the cost is
minimized. The producer has to optimize, costs and factors.
3. Exchange: The buyers and sellers meet at the market. They
have conflicting interests. Depending on the market the prices
are determined which fulfill the consumer objectives as well
as the firm objectives.
4. Distribution: Distribution deals with determinations of factor
prices. It is important in the determinations of factor incomes/
household incomes.
Micro economic theories help in the designing the models of demand
forecasting, consumer behavior models, pricing and determination of factor
prices.
Most micro economic theories are partial equilibriums which provide in
depth details of a specific economic activity.
Economic equilibrium
Equilibrium is a state of rest where there is no urge to change. The
equilibrium is attained by a set of two or more economic forces.
At equilibrium, the objectives of economic activity are achieved.
Dr.Ranga Sai
First Year BMM Semester I, Economics (w.e.f. June 2009) 6
• Consumer equilibrium – consumer satisfaction is maximized;
• Producers’ equilibrium – the cost are minimized
• Market equilibrium – the price and quantity are so determined that are
acceptable to both buyers and sellers.
Economic equilibrium is not permanent. The equilibrium is valid as long as
the factors determining it remain unchanged. Any change in any one of the
factor, the equilibrium will undergo a change.
Static equilibrium: In economics static equilibrium refers to rigid models
which do not accept more or changing variables. Subject to the given
set of variables, the equilibrium is attained. Such equilibrium may not
have large policy applications;
e.g. circular flow of incomes- it explains the relationship between various
economic activities
Dynamic equilibrium: It is an advanced economic model which gives
relationships between several economic variables and can also
accommodate change. Such economic models have large application in
policy making
e.g. input-output matrix of national income accounting provide relationships
as well as determinants at each level of economic activity. The output
of one sector becomes the input for the other sector. This is an
advanced model of explaining circular flow of incomes. .