CHAPTER 3
Basic Principles: Microeconomics EVERYONE
IS ALWAYS IN FAVOR OF A GENERAL ECONOMY
AND PARTICULAR EXPENDITURE.
— A N T H O N Y E D E N , 19 59 of Keynesian principles in post-war economic thought, economics was divided into pricing theory and monetary theory. Today, those divisions have been given the titles microeconomics and macroeconomics. As the names indicate, the former looks at the smaller picture of day-to-day economic decisions while the latter takes a larger view of the world. However, these are not exclusionary branches. One cannot look at the behavior of individual consumers without contrasting it to all consumers, nor can one understand the economic policy of a nation without analyzing how its individual firms function. Nor, and most importantly for this chapter’s discussion, can we understand how international economics functions until we comprehend the actions of smaller units.
PRIOR TO THE DOMINANCE
Microeconomics Microeconomics is the study of individual economic units. These include workers, consumers, landowners, businesses, investors, shareholders and service providers. The main goal of microeconomics is to explain how and why these units review choices and make decisions. Microeconomics also studies how individual units interact to form (or not form) larger units. Consumers form into market segments, which are part of general product markets, which are subgroups of local markets, which are in turn part of national markets, all of which form the international market. There is certainly a case to be made that every nationstate fulfills a microeconomic function in the larger (macro) global marketplace. POSITIVE VS. NORMATIVE
Microeconomics (as well as macroeconomics) deals with both positive and normative concepts. Positive concepts focus on the realities of economic life, while the normative questions look at how things ought to be under ideal circumstances. The theories that will be presented are open to interpretation (hence, the chapter’s opening quote) and we will look at things from several perspectives. Our concern will be with both competitive and non-competitive markets: a competitive market is not dominated by any single buyer or seller who can seriously impact prices, while non-competitive markets are controlled by a single player or a cartel. (A monopoly occurs when there is a single seller, and a monopsony occurs when there is a single buyer.)
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