Satisfaction of All Stakeholders of Microeconomics - Essay Example

Microeconomics Microeconomics is a branch of economics that seeks to understand how individuals, households, and firms decide on how to locate the scarce resources available in the present times. It seeks to understand their economic behaviors in distributing production and income totals amongst themselves. It then allocates the resources available in the society to many potential uses. It also seeks to understand how national economic policies affect these households and firms. Major issues in Microeconomics There are areas in microeconomics that need to be addressed in order to bring more economic benefits to the individuals, households and firms. Environment According to Tietenberg (2006), microeconomic issues regarding the environment come in two paradigms namely ecological and economic paradigms. The ecological paradigm emphasises on the health and survival of ecosystems. This means minimal and controlled exploitation of the ecosystem. On the other hand, microeconomics stresses on maximising the welfare of the people. This involves maximum exploitation of resources. This causes destruction, depletion and pollution. This has led to the development of ecological economics. This field deals with merging the insights of the two paradigms and resolve their differences. Market failure Microeconomics seeks to understand why a market has failed to deliver satisfactory results. It then explains theoretical conditions that are necessary for achievement of perfect competition. When a market has failed, its standard economic assumptions have been undermined. Causes for this include, negative externalities which makes social cost of production to surpass private cost. An example is effects of pollution. On the other hand, positive externalities cause social benefits of consumption to be higher than the private benefit. Imperfect information leads to over-production of demerit goods and under-production of merit goods. Underproduction and high prices can result from dominance by monopolies in the market. Incomplete market occurs where buyers and sellers are not fully aware of the other person’s position regarding product price hence prices may not reflect the true value for the product. Production inefficiency results from factor immobility which causes unemployment. Its competitive advantage is below the expectations of the society (Garegnani, 2006). Market failure results in allocative inefficiency. This is where there is resource misallocation and production of products that are not needed by customers at that time. It is an issue because these resources could have been utilized to make products that meet customer needs. It also causes production inefficiency. This is where given inputs are put in place but the outputs are not maximized. The lost output could have been utilized to satisfy more customer needs. Generally, market failure results to social and economic welfare loss. Demand and supply Microeconomics seeks to explain how decisions of resources allocation and the behaviors of people in the market influence demand and supply. The demand and supply will definitely affect the market prices. It then seeks to understand how these prices will in turn dictate the quantity of goods demanded and supplied. For customers to be happy and satisfied demand and supply needs and expectations should be adequately met. The main issue is that microeconomics has not been able to fully control shifts in demand and supply. Every level of demand is subject to supply. When there is over supply, minimum prices can go below the equilibrium. This makes the price irrelevant. No or less profits will be accrued hence the supply has no bearing on the market. It also happens if the price is too high (Robert, 2006). Prices and quantity of individual products Microeconomics analyses mechanisms in the market and other factors that lead to the achievement of relative of prices of products. Demand and supply are the major determinant factors for prices. It is not possible to set relative prices. The other issue is that market price goes a long way into dictating the quantity of goods that customers can get. Price change causes behavior change in customers. In times of low prices, there are tendencies of wastage as customers acquire more quantities. This usually coincides with the oversupply period (Robert, 2006). During times of high prices customers can only afford a lower quantity of products. This leads to unsatisfaction. The price of individual goods affects the budget line. The prices of individual products determine their individual quantities. Customers will have to balance various rations of products as determined by their prices so as to fit their budget Tax benefits This is specifically the present and potential benefits from taxation that can be enjoyed by families having an income source, either from a single parents or couples. This is a microeconomic issue because it involves the decisions by people. These decisions in turn will have an effect in the market. Microeconomics has a role to play in tax regulation. An example is the current ‘Family Tax Benefit (B). According to this issue, all families that have one income earner receive tax benefits. This has been granted regardless of their present income and needs. This means that the rich families are getting a share of the benefits that is more relevant to the poor. Effects of government regulation on products in terms of prices and quantities Garegnani (2006), microeconomics is subject to law. The government can set the highest and the lowest possible market price for various products. This may work to the disadvantage of the customer or firms. The government may also impose indirect taxation on the product. This will affect their prices and consequently demand. In most cases, any regulation by the government brings about negative results. Allocation of resources Whenever market failures occur, suboptimal resource allocation also occurs. This is spending that generally profitable to all groups using the resource. It discourages financing because it does not directly profit any person. Economists may create a situation of ‘missing markets’ so as to facilitate efficient trading in areas that had none before. Conclusion Satisfaction of all stakeholders of microeconomics is very important. It is possible to deal with some of the issues of microeconomics for example over-supply. Goods can be stored or processed at such times for use when supply is low. This will help to stabilise market prices and make the market continuously relevant. It the best option compared to forceful government regulation of prices. References Garegnani, P. (2006). “Heterogeneous Capital, the Production Function and the Theory of Distribution”. Journal of Review of Economic Studies. Online. http://www.answers.com/topic/supply-and-demand. Viewed on 19th February, 2011. Robert, F. (2006). Microeconomics and Behavior (6th Ed). Online. http://tutor2u.net/economics/revision-notes/as-markets-price-elasticity-of-demand.html. Viewed on 19th February, 2011. Tietenberg, T (2006). Environmental and Natural Resource Economics ( 7th ed). Online. http://www.eoearth.org/article/Environmemt economics. Viewed on 19 February, 2011. Read More