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Micro Economics:Definition and Types

Microeconomics is the study of economic behavior of individual units like individuals and firms. It explains how they make decisions to maximize utility and profits in a world with scarce resources. There are three types of microeconomics: 1) Simple microstatic which analyzes equilibrium at a single point in time assuming all factors are constant, 2) Comparative microstatic which compares two equilibrium points but does not explain how one shifts to another, and 3) Microdynamics which fully explains how an old equilibrium breaks down and a new one forms by analyzing lagged relationships between microeconomic variables over time.

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2K views2 pages

Micro Economics:Definition and Types

Microeconomics is the study of economic behavior of individual units like individuals and firms. It explains how they make decisions to maximize utility and profits in a world with scarce resources. There are three types of microeconomics: 1) Simple microstatic which analyzes equilibrium at a single point in time assuming all factors are constant, 2) Comparative microstatic which compares two equilibrium points but does not explain how one shifts to another, and 3) Microdynamics which fully explains how an old equilibrium breaks down and a new one forms by analyzing lagged relationships between microeconomic variables over time.

Uploaded by

Mahendra Chhetri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Micro Economics:Definition and Types

Economics is classified in two branches:micro and macro economics.Micro economics is derived from the
Greek word 'mikro' which means small.Thus,micro economics is the study of economic action and behave
of individual units.It explains the small component of national economy and explains their inter-
relationship as well as equilibrium situation. It tells us how the individuals and firms make themselves as
well off as possible in the world of scarcity and consequences of those individual decisions for market and
entire economy.
Micro economics solve the basic economic issues like what to produce?,how to produce?,ans for whom
to produce?.

Types of Micro economics


1.Simple Micro Static
2.Comparative Micro Static
3.Micro Dynamics
1.Simple Micro Static
Under this system,all the factors included in the model do not want to change their status but remains
constant.And here the point of equilibrium is determined.And is always constant.It is the analysis of micro
economics equilibrium at a point of time.

Above figure assumes both demand and supply is constant.An economy is always at price P and
demand and supply are DD and SS.And hence it always gains the equilibrium at point E.

2.Comparative Micro Economics


This economics fall between simple statics and micro dynamics.It makes ta comparison between the two
equilibrium.It is like two steel pictures taken randomly.And the comparison made between those two
pictures.Under this,all the factors in an economy may change. Equilibrium situation may change.One
equilibrium breaks down and another forms.And finally the comparison between those two equilibrium
points is done.But it doesn't explains why the first equilibrium is broken and new is formed.It only
compares.
In an economy demand may increase from DD to D'D',which leads the change in equilibrium from E1 to
E2.Here the comparison between E1 and E2 is explained.

3.Micro Dynamics
As like the comparative micro static,it compares the two equilibrium:old and new,but it also fully explains
about the process of breaking of old equilibrium point and formation of new one.In another way,micro
dynamics explains the lagged relationship among micro variables.

Here the equilibrium of demand and supply is changed due to the bargaining and convincing relation of
buyer and seller for quantity and price of the product.
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