microeconmics





Microeconomics
By: DanniLion

Outline Thesis Statement: Microeconomic mechanisms can predict future technology impacted economic outcomes. I. What is Economics? A. What do economics tell us? B. The science of economics 1. defining microeconomics 2. some terms and definitions II. Using Microeconomic models A. Theory 1. practical application 2. household choices III. Economic Growth A. The cost of economic growth B. Capital accumulation C. Technological change IV. Individual and Market Demand A. Household Consumption Choices 1. Constraints 2. Preferences 3. Marginal utility a. an analogy 4. Utility maximization V. Predictions Based on Marginal Utility Theory A. Price increases B. Increases of income VI. In Conclusion This paper will attempt to examine microeconomic structures in relation to technological advances. The impact of increasingly available technology is a major economic force. Prior to 1975, for example, viewing a first run movie at home was technically possible but economically infeasible. Only the wealthy chose to view moves at home. VCR’s became available in 1976, with a typical price tag of $2000.00 Even at such a high price, that invention slashed the price of home viewing. Today a VCR can be purchased for $200.00, a fraction of its’ initial cost. Videos can be rented for approximately a dollar or purchased for around $20.00. Home viewing has become common in a few short years, where formerly it had been available only to the very rich. In what other ways has technology changed the way of life and can microeconomic mechanisms accurately predict future economic outcomes? What is Economics? The simple answer to the question, “What is the economy?” is to state that the economy is the means by which resources are allocated. A more accurate portrayal of economic process is to view it as a machine that produces three distinctly different results:  First, the economy determines what goods and services will be produced and in what quantities.  Secondly, it indicates how various goods and services will be produced.  Thirdly, it resolves the question of distribution. Markets for goods and services, and markets for production of those goods and services – command mechanisms –directly correlate with the choices made by households, firms and governments. The US economy relies mainly on markets but to a degree on command mechanisms. The US economy is an open economy and has become highly integrated with the global economy. This is a fairly recent development, with foreign investment into US business outstripping US investments in foreign enterprises shifting the balance in the mid-1980s. Economists study these financial movements in order to determine the underlying principles driving the economy. This approach utilizes the same rigor and objectivity of natural scientists. Economic science, like natural science, is an attempt to discover a body of laws. All sciences use the same criteria in the investigative process: careful and systematic observation and measurement, and the development of a body of theory to direct and interpret observations. That theory is a general rule or principle that allows economists to understand and predict the economic choices that people make. Theories are derived from building and testing economic models. Economic models are built on four key premises. These basic assumptions are:  People have preferences  People have a fixed amount of resources and a technology that can transform resources into goods and services.  People choose how to use resources and technology to increase economic well-being.  People’s choices are coordinated – buyers choose what sellers offer and vice versa. The implications of such models are that the values of various prices and quantities result in “equilibrium”. That is, situations in which everyone has made the best possible choices, given their own preferences, information, resources, and technologies, and that those choices are coordinated and compatible with the choices of everyone else. Equilibrium is the solution or outcome of an economic model. Economic models fall into two categories: Microeconomics and macroeconomics. Microeconomics is the branch of economics that studies the choices of individual households and firms. Because it analyzes the behavior of economic units, microeconomics is a most important social science. Microeconomics theory is used to analyze various circumstances and outcomes from decision making. In addition, microeconomics provides foundations for scientists of other social disciplines. Microeconomics is a highly useful tool in business management, aiding in planning, finance, and