Characteristics of Microeconomics
Characteristics of Microeconomics
Characteristics of Microeconomics
OF
MICROECONOMICS
GROUP 1
Characteristics of Microeconomics
1. Microeconomics focuses on the choices made by individual decision units such as households, producers, and
firms.
2. Microeconomics looks at how prices are determined. Microeconomics is often called “price theory”
1. Pure competition – a marketing situation in which there is a large number of sellers of a certain product which cannot be
differentiated, thus, no firm has can control its price.
2. Monopolistic competition – consumer substitute between the similar products. One product many brands.
3. Oligopoly – a competitive situation in which there are only few sellers of products that can be differentiated but not to any
great extent.
4. Monopoly – a single seller or producer that excludes competition from providing some products.
3. Microeconomics is concerned with social welfare.
4. Microeconomics has a limited focus.
5. Microeconomics develops skills. The study of microeconomics helps to develop a set of useful and marketable
skills.
Characteristics of Microeconomics
a) Microeconomics enhances your logical reasoning.
b) Microeconomics will help you develop skill in the construction and use of models.
c) [This is one of the major skills economists offer to the business community]
d) Microeconomics employs optimizing techniques that are useful for making decisions in a variety of situations.
e) The concepts studied in microeconomics are applicable to personal resource allocation decisions such as your
career choices or financial investments.
Economic model is a simplified description of reality, designed to yield hypotheses about economic behavior that can
be tested.
◦ The supply and demand could be expressed in three different forms:
1. Verbal or logical
2. Mathematical
3. Graphical
Law of Supply - states that the quantity of a good supplied (i.e., the amount owners or producers offer for sale) rises as
the market price rises, and falls as the price falls.
Supply – is a schedule of prices and quantities that a supplier or suppliers would be willing to offer for a sale at each
price per period of time.
Verbal: [As suppliers, they would be encouraged to sell more at higher prices and would sell less at lower prices. This
is because higher prices mean higher profits, and lower prices mean lower profits. Prices and quantity offered for sale
are directly related, the higher the price, the more supply; the lower price, the less supply.]
Mathematical: [The law of supply can be also expressed in mathematical notations. Mathematical notations are
shortcut representations of verbal explanation.]
Qs= 500P
The equation Qs=500P means that if the price is Php 1.00, the quantity supplied Qs would be P500 (500x1 = 500). If
the price is Php 3.00 quantity supplied would be Php 1,500 (Php500.00 x 3= Php 1,5000; and if the price is Php 6.00
quantity supplied would be Php 3,000 (Php 500 x 6= Php 3,000)
Graphical: [The law of supply can be also expressed graphically. If we compute the supply schedule as expressed in
the equation, Qs= 500P.
Supply Schedule
Price Quantity Schedule
1 Php 500.00
2 1,000
3 1,500
4 2,000
5 2,500
6 3,000
Supply Curve
Price
4.5
3.5
2.5
1.5
0.5
0
500 1,000 1,500 2,000 2, 500
Quantity Supplied
Models are abstractions
- Models focuses only on the essential elements of an object or process.
[We analyzed the behavior of supply only from the point of view varying prices. We mentioned that if prices are high,
quantity supplied would be also high.]