DEVELOPING ECONOMIC THINKING

Developing Economic Thinking

Developing Economic Thinking

Difference between microeconomics and macroeconomics

Macroeconomics studies the behavior of aggregate economic variables, i.e. variables that are formed with other variables. For example, the aggregate output of a country is formed with the production of all businesses, families, individuals and the public sector in this country. Other variables in the usual macroeconomic study are inflation and unemployment (Blanchard, 2000, pp. 20-40).

Microeconomics, however, studies the behavior of individual economic units, such as individuals, families, businesses and the markets in which they operate. For this reason it is also often defined as the science that studies the allocation of scarce resources among alternative ends. Microeconomic theory uses formal models that attempt to explain and predict, using simplifying assumptions, the behavior of consumers and producers. In general microeconomic analysis is associated with price theory and its derivations (Dass, 2002, pp. 1-9).

Scarcity and opportunity cost

In economics the interrelationship between endless needs and limited availability of resources refers to the shortage. This is not an attribute of a particular good or resource, but it reflects a situation. For this reason, we see the way we manage our time and money.

The concept of scarcity in economics means that resources are still available in limited quantities. The absolute abundance does not exist to fulfill the needs of every individual. The opportunity cost of a choice is the value of the best option was rejected because of this choice. In a market economy, private property for sale in competitive markets, using inputs obtained in the competitive market, the direct costs are opportunity costs (Mahoney, n.d., pp 1-13).

Production frontier

Production frontier is the efficient production (or efficient).Production will be efficient if the use of the same factors of production, it is not possible to increase the production of one good without decreasing that of the other.

A, XA cost in terms of Y = Ymax-YA.

• Opportunity Cost and choice of an economy as a whole:

All the resources and technologies available throughout the company are limited. Investment decisions of an economy determine a significant influence on its growth.

Supply and Demand equilibrium

The market is a meeting place of an offer and a demand for goods and services. Generally, the exchange takes place on the market with a particular good, the currency, which has three functions: unit of account, store of value and medium of exchange (Merwin and Jordan, 2006, 287-293). The model of supply and demand is a model that describes the operation of a market competition.

Effects of equilibrium price and quantity of changes in market conditions

The equilibrium model is a simple management tool to analyze the effects of the sales price, fixed cost and unit variable cost in the economic performance of the company. The equilibrium volume is more sensitive to changes in the sales price, and then the unit variable cost and fixed cost lesser extent.

The unit variable contribution margin, i.e. the difference between the selling price and unit variable cost, is intended to cover fixed costs, generate income and eventually protect normal risk of having ...