Microeconomics Week 2 Flashcards
Study of individuals, households, and firms behavior in decision making and allocation of resources
Microeconomics
behavior of individual consumers and producers in detail is analyzed
Nature of analysis
divides the economy into various small units and every unit is analyzed in detail
Method
involves product pricing, factor pricing and theory of welfare
scope
useful in formulating various policies, resource allocation, public finance, international trade
application
assumption of ceteris paribus is always made in every micro economic theory
Nature of assumptions
other things being same
ceteris paribus
Prices of individual commodities are determined by market forces of demand and supply
Commodity pricing
Land, labor, capital and entrepreneur, all factors contribute in production process so they get rewards in the form of rent, wages, interest and profit respectively
Factor pricing
Deals with optimum allocation of available resources and maximization of social welfare
Welfare theory
studies behavior of individual consumer or producer in a particular situation
Individual behavior analysis
Resources are already scarce i.e. less in quantity
Resource allocation
decides prices of various goods and services on the basis of demand-supply analysis
Price mechanization
helps in formulating various economic policies and plans to promote all round economic development
Economic policy
explain operating of a free enterprise economy where individual has freedom to take his own economic decisions
Free enterprise economy
helps the government in fixing the tax rate and type of tax
public finance
helps in explaining and fixing international trade and tariff rules
foreign trade
not only analyze economic conditions but also studies the social needs under different market conditions
Social welfare
especially in case of full employment assumption which does not exist practically
Unrealistic assumptions
based on the information dealing with individual behavior
Inadequate data
It assumes that all other things being equal (same) but actually it is not so.
Ceteris paribus
Simplified representation of how two or more variables interact with each other
Theory
Comparison of two different economic outcomes before and after a change in some underlying exogenous parameter
Comparative statics
Complex approach for the study of economic variables
Dynamic analysis
Neglects the way in which changes in one market affect other product/factor markets.
Partial equilibrium
analyses the way in which the choices of economic agents are coordinated across all product and factor markets
General equilibrium
