Principles of Microeconomics

In the modern economic system presented in the world today, microeconomics, and the study of such, is a vital part of the budding economic scholar. In most circumstances, microeconomics is based on the cumulative study of how individuals and firms, or a combination of the two, make decisions regarding the allocation of resources, typically in markets where goods and services are bought and sold. This allocation, or optimization of limited funds through distribution, usually follows 2 standardized theories: the Consumer and Producer. Consumers usually choose to maximize their available preference in the market, with a limited income value or time aspect. This is evident in the world economy, with consumers always being fiscally motivated and generally basing decisions off of price and how long it may take to fulfill this decision. Producers follow a different spectrum. Generally, producers base their actions and decisions off of maximizing profit, with little capital usage or loss. These two relationships bud off of each other, as producers' profit is generated by the consumer's interest in certain goods created by the producer.
With both aspects in hand, the consumer and producer fall into many forms of markets. There are two main categories of markets: Product Markets, and Factor Markets. Product Markets are the more commonly seen markets, in which individuals purchase products from firms or businesses. This is where the Consumer and Producer theory comes into play. Factor Markets are generally the opposite, having firms buy services from individuals. These services may not follow the definition of "buy," but rather guide along the relationship between employer and employee. A Factor Market is where firms or businesses seek out workers and borrow money for capital expenditures, and the sellers are individuals who provide labor to the firms, and usually save their money in banks.
Within these categories, many sub-markets branch out. Competitive Markers are the most common, having many sellers providing similar products to many buyers. Competitive businesses make profit based off of the relationship between net and gross income, and depend on providing a more reasonable price than its competitor. This type of market is seen mainly with a capitalist economy. Monopolistic Markets are similar to Competitive, but they differ in the type of product. Monopolistic businesses provide differing items that all provide a common service. A Monopolistic business gains profit by providing a product that the same basic service as another business, but differs in small details that contour to different types of buyers. The auto industry, proving scooters, motorcycles, automobiles, and other forms of differing transportation is an example.
Oligopolistic Markets are less common, but still prevail in the modern economy. An Oligopolistic business is one with few competitors, basing its revenue off of "outsmarting" its opponents by analyzing their decisions and predicting the outcome. Having an analysis of an opponent provides the basis for Oligopoly, as income is based on providing a product that has more features than another product, released to the public around the same time. The Cellular industry provides a pristine example of the Oligopolistic Market.
A Monopoly is one of the more rare markets, mainly due to the mainstream production found in capitalist economies as well as government regulation. In a Socialist or Communist economy, however, a monopoly is not uncommon. Without government regulation, some businesses may completely overrun a certain product, therefore owning all parts of it. This allows the business to solely control the pricing, without any competition or reason to regulate pricing. Having one gas company, for example, would be a monopoly, since that gas company would have no competitive regulation over its pricing.
There also exist markets which oppose these markets in general; where the buyer has control over the pricing, rather than the seller and its competition. These two markets are known as a Monopsony and a Oligopsony. A Monopsony resembles a Monopoly, except there are many providers, and only one buyer. Thus, the buyer can control the pricing of each company by playing them against each other, providing the most reasonable price. Having the government buy healthcare would be a Monopsony, as the government would put company against company to drop each price substantially. A Oligopsony is having a few buyers to many sellers. The Tobacco industry is ruled over by Oligopsony, since the few main buyers of tobacco play the farmers against each other to lower each price. Usually, the few buyers will analyze the sellers together, and cumulatively devise a strategic system of regulation to control their budget and overall net income.
As one may see, the overall price influence in a market raises with the differentiation in supply and demand. As the supply curve lowers, with no change in demand, the proportionate influence goes up, as the price changes more drastically with fewer sellers. Oppositely, as the number of buyers decreases, price influences changes drastically once more to suit the one buyer, and to maximize profit for one business while still generating a net income.
Another large aspect of microeconomics is the method of economic measurement. When measuring the effectiveness of an economic system, many variables come into play. Literal variables are put forward, termed stock and flow variables. A stock variable is one with no respectful relation to time. Stock variable are most commonly measure by necessity. Things such as inventory, price, wealth, and availability are measured most commonly by necessity, or by quantity. Stock variables play a vital role in an economy, because they provide a somewhat adjustable system for the consumer, while still providing a plentiful product.
Flow variables are more commonly seen with aspects of income. Flow variables are based off of units of time, such as income per year, or production per month. Flow variables help to regulate stock variables, as well as regulate the general society by providing a more solid base to help rule over certain social aspects dealing with businesses and how much a business can provide. This helps consumers limit themselves appropriately to be sure of constant availability, while giving a business a marker to how much they can produce.
Analysis is one of the most important parts of an economic system. Economic analysis pertains to almost every part of a budding business or a worldwide conglomerate, and for most firms is the key to success and steady income. One of the most heavily viewed parts of analysis is inflation in the dollar. Being able to calculate inflation of certain products can help with competition as well as future expenditures, and provide a basis on how much to spend on business needs and how much to save.
Inflation is most commonly calculated using the Consumer Price Index, or CPI. The CPI provides a system of how much a certain item raised over a time span, based off of the base unit of time being used to calculate. Using a weighting system, the CPI is calculated each year by economic analysts to view the current rate of inflation, therefore giving a faint perspective into future expenditures, whether beneficial or not. Using the CPI, one can also derive the Nominal and Real prices of an item.
Nominal price is practically the face value of an item. It is the current, absolute price of an item paid up front. Nominal price is the price the consumer sees, with inflation rates already added to it. The Nominal price is what generates profit for the business deriving it. When the inflation rate is removed by calculating the difference in CPI values of the base unit of time when the product came about, against the current unit of time, the Real price is seen. The Real price displays the actual price increase, or decrease, in a product from when it began to be sold, without inflation rates of the dollar added on. The Real price of an item is key to seeing the true value of the dollar in an economic system, which determines many futuristic investments, and stock values and so forth. The Real value and its changes fuel an economic system and its businesses to grow and expand.
There are two main types of analysis based off of the CPI in an economic system. Positive Analysis is studying the relationship between cause and effect in real world situations. Positive Analysis deals heavily with explanations of why things happen through a social perspective and predicting what may happen next. Normative Analysis is analysis based off pertinence to society, and the way things should be based off of necessity and assistance to the modern society, as well as the economic world. Using sports is a great way to describe both. With LeBron James, Positive and Normative analysis come into play. The Positive Analysis view would state that LeBron James makes 100 million dollars a year because that is his market value, based off of the amount of fans/viewers he has. The Normative Analysis view would state that his income is too high, because he doesn't play a vital role in the modern society, whereas a scientist, per se, would have a higher necessity for that pay grade because they provide real fact and scientific explanation for certain topics, giving a helpful assistance to society. The scientist would play a greater role in the Normative Society, whereas LeBron would overtake the Positive society.

Kamran Ali is a high school student prospective towards a study of economics, as well as continuing his academic success in other areas. Kamran is a talented creative writer with a keen interest towards the classics. Kamran is highly involved with his local community, volunteer services and other beneficial organizations. Kamran has devoted part of his time to sharing his knowledge of economics with the world, as well as aspects of essay writing, novel writing and creative writing, all in the form of articles and tips.