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Name: Crizzle Elivera Course: BSBA-HRM: Characteristics of Microeconomics

1. The document discusses key concepts in microeconomics including price theory, characteristics of microeconomics such as its analytical nature and assumptions, economic models including theoretical and empirical models, models of abstraction, comparative statics versus dynamics, and partial versus general equilibrium. 2. It defines price theory and explains that microeconomics analyzes individual economic behaviors and decisions of consumers, producers, and resource owners regarding production, allocation, consumption and pricing of goods and services. 3. Economic models are described as simplified representations of reality used to generate testable hypotheses about economic behaviors. Theoretical models derive implications under specific assumptions while empirical models aim to verify theoretical predictions numerically.

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36 views

Name: Crizzle Elivera Course: BSBA-HRM: Characteristics of Microeconomics

1. The document discusses key concepts in microeconomics including price theory, characteristics of microeconomics such as its analytical nature and assumptions, economic models including theoretical and empirical models, models of abstraction, comparative statics versus dynamics, and partial versus general equilibrium. 2. It defines price theory and explains that microeconomics analyzes individual economic behaviors and decisions of consumers, producers, and resource owners regarding production, allocation, consumption and pricing of goods and services. 3. Economic models are described as simplified representations of reality used to generate testable hypotheses about economic behaviors. Theoretical models derive implications under specific assumptions while empirical models aim to verify theoretical predictions numerically.

Uploaded by

Crizzle Elivera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Name: Crizzle Elivera

Course: BSBA-HRM

1. Price theory and Economic theory

Price theory, also known as microeconomics, is concerned with the


economic behavior or individual consumers, producers, and resource owners. It
explains the production, allocation, consumption and pricing of goods and
services. In addition, Price theory, as defined by Prof. Leftwich, “is concerned
with the flow of goods and services from business firms to consumers, the
composition of the flow, and the evaluation or pricing of the component parts of
the flow. It is concerned, too, with the flow of productive resources (or their
services) from resource owners to business firms, with their evaluation, and with
their allocation among alternative uses.” On the other hand, the theory of price is
an economic theory that states that the price for any specific good or service is
based on the relationship between its supply and demand. The optimal market
price, or equilibrium, is the point at which the total number of items available can
be reasonably consumed by potential customers.

2. Characteristics of microeconomics

The characteristics of Microeconomics are the ff.


 Nature of Analysis- In microeconomics, the behavior of individual
consumers and producers in detail is analyzed. It is study of subject
matter from particular to general.
 Methods- microeconomics divides the economy into various small unit
which is analyzed in detail. It is a slicing method.
 Scope- microeconomic analysis involves product pricing, factor pricing
and theory of welfare.
 Application- both theoretically and practically, microeconomics is useful
in formulating various policies, resource allocation, public finance,
international trade and etc.
 Nature of Assumptions- assumption of Ceteris Paribus is always made
in every micro economic theory. It means theory is applicable only when
other things being same.
3. Economic Models

An economic model is a simplified description of reality, designed to yield


hypotheses about economic behavior that can be tested. An important feature
of an economic model is that it is necessarily subjective in design because
there are no objective measures of economic outcomes. Different economists
will make different judgments about what is needed to explain their
interpretations of reality. There are two broad classes of economic models—
theoretical and empirical. Theoretical models seek to derive verifiable
implications about economic behavior under the assumption that agents
maximize specific objectives subject to constraints that are well defined in the
model (for example, an agent’s budget). They provide qualitative answers to
specific questions—such as the implications of asymmetric information (when
one side to a transaction knows more than the other) or how best to handle
market failures. In contrast, empirical models aim to verify the qualitative
predictions of theoretical models and convert these predictions to precise,
numerical outcomes. Economic models generally consist of a set of
mathematical equations that describe a theory of economic behavior
4. Models of Abstraction
Abstraction is simplifying the complexities of the real world by ignoring (hopefully)
unimportant details while doing economic analysis. Abstraction is an essential
feature of the scientific method. Hypothesis verification, model construction, and
comparative static analysis are not possible without abstraction. Abstracting from
the details of the real world is essential to the study of economics and any other
scientific endeavor. The scientific method would not, could not, exist without
abstraction. For example, a market graph is NOT an actual market. It merely
represents market activity. Analyzing price changes are easier with the
abstraction of a market model. Words, graphs and equation are one of the method
of abstraction.
5. Comparative statistics vs. Comparative analysis
Static economics studies only a particular point of equilibrium. But dynamic
economics also studies the process by which equilibrium is achieved. Therefore,
static analysis is a study of equilibrium only whereas dynamic analysis studies
both equilibrium and disequilibrium.

6. Partial vs General Equilibrium

In a partial equilibrium model, you are ignoring feedback that may result from
related markets. General equilibrium models differ from partial equilibrium models in
that they incorporate related markets or economic sectors into the analysis. In a
general equilibrium model, feedback from other markets is considered to account for
the fact that exogenous shocks occurring in other markets have implications for the
market in question.

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