PILLARS OF MICROECONOMICS

Pillars of Microeconomics

Pillars of Microeconomics

Introduction

Microeconomics is one of the main fields of economics that studies the actions and decisions of individual consumers, firms and industries to deal with the available assets, usually in markets where selling and buying of goods takes place. The branch primarily examines how decisions affect the supply and demand for products, and how to deal with money and related prices (Pressman 2011, 511-539). The aim of studying microeconomics is to stay one step ahead in the market competition with other competitors. In order to rule the competition, it is necessary that prices are low, and profits are higher for consumers in contrast to other counterparts.

The paper will examine and analyze the two pillars of microeconomic theory i.e. imperfect competition and asymmetric information.

Comparison between Imperfect Competition and Asymmetric Information

Imperfect Competition

According to the economists Samuelson and Nordhaus, imperfect competition refers to markets where there is perfect competition, because at least one seller (or buyer) is large enough to influence the market price and therefore has a demand curve (or supply) of negative slope” and while complementing this statement, both authors note that "imperfect competition refers to any type of blemish: pure monopoly, oligopoly or monopolistic competition". It is a market situation in which vendors or companies compete and have some control over the price because they offer differentiated products and / or limited supply. Additionally, this type of market information is incomplete and emotional behavior of market purchase, so that firms use the promotion to inform, persuade or remind your target market the features and benefits of their products (Liu 2011, 2189-2196). Monopoly, oligopoly and monopolistic competition are three types of imperfect competition that currently exist.

Imperfect competition is the situation of market failure in which, unlike the situation of perfect competition, a single agent operating in the market or a few manipulate the condition of the product and may directly affect the price formation. In imperfect competition, firms residing in that market can have enough market power to affect the price. The main consequences of this market power can have a negative impact on consumer welfare and efficiency losses. There are numbers of imperfect competition forms such as monopoly where only one seller exist in the market, oligopoly where only few seller exist in the market, Monopolistic competition which comprises of many sellers manufacturing extremely distinguished goods, Monopsony where one buyer of the good exist in the market, Oligopsony where few buyers exist in the market and lastly, Information asymmetry in which one competitor has benefit of more or better information (Baltzer 2012, 61-63).

Peculiarities of Imperfect Competition:

The imperfectly competitive market has the following characteristics that distinguish it from other types of competition or market:

Sellers can control to some extent the price of your product. However, this discretion (the price) varies from one industry to another. For example, in personal computer sales, just a price difference of few percentage points affects significantly to the sales of a ...