CONTENTS

• INTRODUCTION
• DECISIONS OF MICROECONOMICS
• CENTRAL THEMES OF MICROECONOMICS
• USES OF MICROECONOMICS
• REFERENCES
INTRODUCTION
• Study of the economic behavior of individual units of an economy (such as a person,
household, firm, or industry) and not of the aggregate economy (which is the domain of
macroeconomics).
• Microeconomics is primarily concerned with the factors that affect individual economic
choices, the effect of changes in these factors on the individual decision makers, how their
choices are coordinated by markets, and how prices and demand are determined in individual
markets.
• The main subjects covered under microeconomics include theory of demand, theory of the
firm, and demand for labor and other factors of production.
• Also Microeconomics studies the decisions of individuals and firms to allocate resources of
production, exchange, and consumption.
D ECISIONS OF
M ICROEC ONOMI CS
 DECISIONS OF MICROECONOMICS
• Microeconomics theory provides an explanation for the routine decisions that we all make.
The impact of these decisions is more observable by a small business because the owner is
closer to the customer.
• Decisions at the Margin: Microeconomic decision-making is based on the principal that
people make rational choices. Given that, people make decisions at the margin. Each choice we
make has an opportunity cost that is the next best foregone alternative. Decision-making at the
margin is the basis for your choices as well as those of your customers.
• Consumer Choices: A consumer’s choices are made by weighing alternatives, i.e., should he
buy the athletic shoes or the sandals; is tonight a movie or bowling night. If the choices cost the
same, then the decision is based on which alternative provides the most marginal utility or
satisfaction. The more he consumes the less satisfaction each additional unit provides. This
means that he will continue to go to the movies, for example, until his taste is satisfied after
which bowling will have more appeal.
DECISIONS OF MICROECONOMICS
• Hiring Employees: Within your small business operations, how much time you spend looking
for a new employee is an example of a microeconomic decision. Suppose you post an ad for a
vacancy that needs to be filled quickly. As the resumes flow in, the marginal benefit of
interviewing candidates -- the probability of finding a better candidate -- declines with each
additional candidate you interview. At the same time, the marginal cost of leaving the position
vacant grows. As long as the marginal benefit exceeds the marginal cost, it pays to keep
looking.
• Management Decisions: Your decision as a business owner regarding how much to produce or
how much inventory to stock is also a microeconomic decision. In reaching a decision about
how much of a product to produce, you will make more as long as the marginal benefit is
greater than the marginal cost of producing it; if you get more when you sell it than it cost to
make it, you will make it. On the other hand, if it costs more to make than you can recoup in
sales, you won't make it.
CENTRA L THE MES
OF
MICROEC ONOM IC S
CENTRAL THEMES OF MICROECONOMICS
• Microeconomics: Branch of economics that deals with the behavior of individuals -- workers, firms
and consumers– as well as how markets are organized
• It deals with limits:
– Limited budgets
– Limited time
– Limited ability to produce
• How do we allocate these limited resources?
• Workers, firms and consumers must make trade-offs
– Do I work or go on vacation?
– Do I purchase a new car or save my money?
– Do we hire more workers or buy new machinery?
CENTRAL THEMES OF MICROECONOMICS
• How are these trade-offs best made?
• Consumers
– Limited incomes
– Consumer theory – describes how consumers maximize their well-being, using their
preferences, to make decisions about trade-offs.
– How do consumers make decisions about consumption and savings?
• Workers
– Individuals decide when and if to enter the work-force
• Trade-offs of working now or obtaining more education/training
– What choices do individuals make in terms of jobs or work places?
– How many hours do individuals choose to work?
• Trade-off of labor and leisure
CENTRAL THEMES OF MICROECONOMICS
• Firms
– What types of products do firms produce?
• Constraints on production capacity & financial resources create needs for trade-offs.
– Theory of the Firm – describes how these trade-offs are best made.
• Prices
– How are prices determined?
• Centrally planned economies -governments control prices
• Market economies – prices determined by interaction of market participants
– Markets – collection of buyers and sellers whose interaction determines the prices of
goods.
U SES OF
MICROEC ONOM IC S
 USES OF MICROECONOMICS
• Individual behavior analysis
Micro economics studies behavior of individual consumer or producer in a particular situation.
• Resource allocation
Resources are already scarce i.e. less in quantity. Micro economics explains  efficient allocation
and utilization of resources to produce various types of goods and services.
It explains economizing of scarce resources to achieve maximum welfare.
• Business planning
Micro economics helps business planning i.e. helps the business community to plan their costs,
production etc. in anticipation of demand in order to maximize profits.
• Price determination
Micro economics is useful in explaining how market mechanism determines price in a free
market economy. Price mechanization or the market forces of demand and supply determines
prices of goods and services without any government intervention.
 USES OF MICROECONOMICS
• Economic policy
Micro economics helps in formulating various economic policies [price policy, tax policy etc.] and
economic plans for economic welfare of the people and to promote all round economic
development.
• Free enterprise economy
Micro economics explains the operating of a free enterprise economy where the individual has the
freedom to take his own economic decisions. All economic decisions such as what, how, how much,
where, when. For whom etc. to produce are taken by producers without any commanding force but
with the market forces of demand and supply.
• Public finance
It helps the government in fixing the tax rate and the type of tax as well as the amount of tax to be
levied on the buyer and the seller.
• Foreign trade
It helps in explaining and fixing international trade and tariff rules, causes of disequilibrium in
balance of payments, effects of factors deciding exchange rates impact of tariffs on prices etc. It
explains and analysis how a country can gain from international trade.
 USES OF MICROECONOMICS
• Social welfare
It not only analyses economic conditions but also studies social needs under different market
conditions like monopoly, oligopoly etc. It explains how maximum social welfare can be
achieved under perfect competition. It also studies how taxes affect social welfare.
• Simple models
Micro economics uses simple models to understand actual economic phenomenon. These
simple models remove the complexities in economic analysis.
• Predictions
Micro economics is useful in making predictions based on conditions.eg demand forecasting
depends on the micro economic principles of demand.
• Basis of macro economics
The study of behavior of individual units provides the base for understanding the behavior of
aggregates.
REFERENCES

• http://www.businessdictionary.com/definition/microeconomics.html
• http://people.tamu.edu/~gtian/econ323/323ec01.ppt
• https://zeepedia.com/read.php?economics_themes_of_microeconomics_theories_and_models_
micro_economics&b=70&c=1
• http://www.econleaks.com/importance-uses-significance-advantages-of-micro-economics/
• https://www.investopedia.com/terms/m/microeconomics.asp
• https://yourbusiness.azcentral.com/examples-microeconomic-decision-16743.html
THANK
YOU