Microeconomics
Microeconomics is a branch of economics, and it is concerned with analyzing and studying the actions of the consumer and the company in light of the limited amount of resources in the surrounding environment, with the aim of understanding the decision-making process by the consumer. Microeconomics is also concerned with understanding how the buyer interacts with the seller, which in turn determines the quantity of supply and demand, which leads to a change in product prices in relation to productivity.
On the other hand, macroeconomics is concerned with studying the behavior of the global or national economy as a single bloc, such as total production, total unemployment, and others.
Overview
One of the main principles on which economics is based is the theory of opportunity cost. Because of scarcity, a person is forced to make a choice, and every choice has a cost. The cost here is the benefits obtained if the other option is chosen. If we take, for example, a trader who wants to invest in the market, and settles His opinion was based on two options: either buying a building that costs 50,000 and has an income of 100,000 annually, or a bakery that costs 50,000 and has an income of 80,000 annually, and he chose to buy the building. In this case, he pays the price of the building in addition to the benefit that would have resulted if he had bought the bakery, so the total cost would be 50,000 + 80,000 == 130,000, so it would be 130,000. It is the total economic cost, not the accounting cost. The 50,000 is the accounting cost and the 80,000 is the opportunity cost or economic cost. In another way, we can say that opportunity cost means the cost of the good or service that is left behind in order to obtain another good, due to the lack of resources that force companies to choose what is available to make as many goods as possible.
From this, four basic problems arise (known as the four problems in economics) and are studied from a micro and macro perspective:
What should be made and at what price?
Who is the consumer?
Why are resources down or poorly used?
What leads to economic growth?
Microeconomics focuses on, among other things, equilibrium (demand and supply), elasticity, the mechanism of action of relative prices in light of the availability of goods and products, supply and demand, game theory, the availability of information or transparency in the market, and perfect competition.
Supply And Demand
The premise of supply and demand is perfectly competitive in the market, which in turn suggests that neither the seller nor the buyer can in any way influence the price of a good or service. Due to the lack or lack of existence of what is called perfect competition, the principles of this hypothesis are often not achieved.
The Demand
Demand means the total quantity required by consumers for a specific good or service in a specific period of time, with the factors affecting consumption remaining constant.
2- Income per capita
3- The presence of alternatives or complements to the required goods.
4- Effective market size (population).
5- General and specific taste (for example, inclination towards a certain type of tea).
6- Distribution of income among the population
7- Future expectations for a specific situation (for example, the expectation of a harsh winter leads to a high demand for winter clothes)
8- Demographic composition of the population.
9- Seasonal factors.
The Law of Demand is a law that states that the quantity of demand is inversely related to the price (all other factors being equal). That is, when prices increase, the demand for the required good decreases, and when prices decrease, demand increases. One of the main reasons leading to this law is the existence of other alternatives. One of the other pillars is the demand curve, which is the relationship between price and quantity required. One of the things that helps in the formation of the law is the presence of several sellers and buyers at the same time, which enables the seller and buyer to purchase and thus the law emerges.
Explanation of the inverse relationship between price and demand quantity:
A decrease in price leads to attracting new buyers, and thus the quantity demanded increases, which leads to a rise in the price, which in turn leads to the presence of buyers who cannot buy the commodity due to the new price, which leads to a decrease in demand again, which leads to a decrease in the quantity demanded. The presence of alternatives causes the buyer, faced with the high price, to search for those alternatives, which leads to them replacing old goods.
The Offer
Supply quantity means the total number of goods produced that the producer wishes to sell during a certain period of time. Desire here means what the product wants to sell, and it is not a condition for the goods to be sold.
The law of supply states that the quantity supplied is directly related to the price. The supply curve. The supply curve represents the relationship between price and quantity supplied to the population.
Explanation of the direct relationship between price and quantity supplied:
The positive relationship between price and quantity supplied is due to the fact that higher prices lead to increased company profits, which leads to producing more of the commodity and offering it for sale in the market in light of increased demand. Even if costs are increasing, higher prices will cover and exceed the costs, creating an incentive for the producer to increase his production and supply of the commodity.
There is also another reason, which is that the law of supply is seen from the point of view of the producer and not the consumer. When the producer sees the goods at a high price, he will rush to increase production of them, and this is what actually happens during the Ramadan season, for example, or the Hajj season for some goods, such as Zamzam water, for example.
The four basic laws of supply and demand
The first law: An increase in demand (with supply constant), i.e. demand is greater than supply, is followed by an increase in the equilibrium price and equilibrium quantity, as well as an increase in the price of the particular commodity.
The second law: A decrease in demand (while supply remains constant), i.e. demand is smaller than supply, followed by a decrease in the equilibrium price and equilibrium quantity, as well as a decrease in the price of the particular commodity.
The third law: A decrease in supply (while demand remains constant), that is, the supply is smaller than the demand, followed by an increase in the equilibrium price and a decrease in the equilibrium quantity, as well as an increase in the price of the particular commodity.
Fourth Law: An increase in supply (while demand remains constant), i.e. supply is greater than demand, is followed by a decrease in the equilibrium price, an increase in the equilibrium quantity, and a decrease in the price of the particular commodity.
Methods of working in microeconomics
One assumption is that all companies work to make wise decisions, which leads to achieving maximum profit. Given this assumption, there are four categories of companies:
A firm is said to make an economic profit when its average total cost is less than the cost of an additional product produced by the firm, meaning it is at the point of maximum profit productivity.
A firm is said to achieve normal profit when economic profit is equal to zero, and this occurs when average total cost equals the price at the point of maximum profit productivity.
It is said that the company is in the process of minimizing losses if the price is between the average total cost and the average variable cost. In this case, the company must continue operating as losses may increase due to stopping.
If the price is less than the average variable cost at the point of maximum profit productivity, the company must close, because the losses will be less by not manufacturing, since with every good manufactured, the amount of losses increases and the return is less, which can cancel the effect of the losses.