Economics is the science that explains how people, mixed as societies, use the resources they have to produce value in order to improve their financial situations. One of the roots of this science is Micro economics.
Their studies have always been an important part of society. In fact, it’s one of the principles that explains why we make some decisions and how we take advantage of the scarcity of resources. It also explains the difficulties that people in the lowest socioeconomic status go through, since they need to struggle often with their paychecks to reach the end of the month.
It takes a small approach, using persons, like individuals, and small businesses as point of view. This means that it focuses on supply and demand and other agents that influence price ranges like the CPI. It also considers how taxes, regulations and legislations affect the financial situations of people.
So, Microeconomics tries to explain what happens when economic forces interact in the market and what changes are created because of it.
E.g, this science can examine how a certain company can maximize their production and profitability, in a way that they could lower their prices and become more competitive, turning themselves into an economy of scale.
Microeconomics uses 5 main concepts to understand human choices and behaviors.
Demand and Supply
This simple law determines the price of all the goods in a market. The optimal point in a utopian scene would be that suppliers offer their products at an accessible price for all the consumers.
This is the point of a perfectly functional and competitive market, where people spend enough money without external intervention while they improve their lifestyle.
Theory of production
The production is basically how goods and services are created. This is a study that includes business and factories as agents that affect the economy.
Costs of production
This criteria sets the price of products and services once they are finished. In order to settle an honest price range, the theory takes into account the cost and amount of resources used to produce something else.
One important part of Microeconomics is workers and employers. This principle tries to understand how the market affects wage patterns, sources of employment and income that a person can earn each month.
At this point you must be wondering “if Microeconomics has that range of study, what does Macroeconomics explain?”
Well, it is the study of the economy as a whole, determining the internal and external policies that affect how a country interacts with other nations.
Instead of individuals, it takes in count huge companies, entire industries and economic sectors.
It also is responsible for determining the inflation rate and stimulating the economic growth of a country. The choices that Macroeconomics make, directly affects the wealth of individuals as well as their acquisitive power, which means, Microeconomics.
- If you are a company that is trying to start into a market but your costs of production are way too high to be competitive, a Micro Analysis would help you to understand what is happening so you can correct it and improve your profitability in an imperfect market.
- As a productive individual you need to get paid what you are worth and be able to buy everything you need to live an honest life. Microeconomics helps you to learn how to react with the changes produced by economic policies.
Whether you are a believer or not, you need Microeconomics to explain your behavior in purchases decisions and acquisitive power.
The United States has been going through one tough situation since last year. where people are struggling to live while the middle class shrinks as their wages aren’t keeping up with production and the annual inflation. But why is this happening? Can someone really say that the prosperous times for the US have ended?
The truth is that this can all be explained.
You can clearly see that the struggles people are having to live in the US are because of an expansive economical policy that derives into inflation and higher prices. The costs of Health insurance, education and housing are increasing but not their income, and this, is a sign of an unbalance in our economy caused by wrong internal decisions and external financial threads, and they will turn into the market in the form of less consumption and personal controls like:
- Eating at home more than going out.
- Measuring your monthly expenses.
- Setting a budget in order to save money for your emergency fund.
- Changing your newer car into an older one.
- Reducing your staff in your small business.
Those are small changes that affect your financial situations, hence your consumption patrons.