The role of microeconomics in every person’s life is enormous; therefore, it is very important to study it. The objects of microeconomics surround us all the time. Microeconomics studies the aspects of functioning of all companies, and we deal with various companies throughout our lives. I shop for food and clothes in stores, go to movie theaters to see popular movies, buy stationary at Home Depot, transfer funds through banks. All of these companies function according to certain laws, which are all studied in microeconomics.
My favorite brand of car is Toyota, and microeconomics is able to determine what the most efficient volume of production for the company is. It is able to give the managers an answer to the question of what the most efficient combination of their resources should be, i.e., how many employees they should employ, how many materials they should get from suppliers and many other issues.
We constantly have to go shopping, and deal with prices which are established according to supply and demand, cost of production and other factors. Whenever the price of tomatoes in the store goes to the roof, we usually see a note in the store that the crops in Florida turned out not as large as it was predicted or that the hurricanes destroyed all of the crops. Even though the same tomatoes cost half the price just a short time ago, we realize that the law of supply and demand has been efficiently applied here.
The demand for tomatoes remained the same, but the supply decreased dramatically and thus prices were destined to increase. I also deal with the concept of elasticity all of the time. Companies never make discounts on products the demand for which is inelastic because the volume of sales is going to remain stable anyway. Therefore, there is usually hardly a chance for me to get such products for a lower price. However, I am always a good shopper when it comes to products with high elasticity because companies decrease their prices on such items from time to time to attract more customers. For example, there is always a chance to buy some clothes on sale.
I deal with the concept of utility all of the time in my life as well. Some of the products have a high level of utility for me, and I am going to buy them at any price because I am simply unable to live without them. For example, DVD’s of my favorite movies are extremely valuable for me, and I am ready to pay any money to be able to see my favorite actor or actress. At the same time, some items have a very low utility for me, and only low price on such items is able to attract me. I am the type of person who always judges products by their utility for me and not by how fashionable they are.
Like every person, I am forced to deal with various market forms, such as perfect competition, monopoly, oligopoly, or monopolistic competition. In most cases, I see the market of monopolistic competition because there are very many items with slightly different features. The market of the United States has very many companies which produce similar items but try to attract consumers by unique features and by efficient advertising. For example, there are very many producers of cars in the United States.
There are also many multinational companies based in the United States which produce cars, for example, Japanese Toyota, Korean Honda and many others. They all produce cars which have quite similar features. All of these manufacturers come up with various models of cars so that they can attract people who like sports cars, who have children, who need to travel in the mountains, or who need fuel-efficient cars. Every manufacturer tries to come up with some unique feature which competitors do not have. To some extent, it is very good for me as a consumer because competitors are fighting for customers and thus they constantly introduce new great deals for us. I am able to fight the model of the car which I want and perhaps even get it at a lower price.
I also often deal with oligopolistic competitors. The market of providers of wireless phones is not as large as the car market. There are some major players in it, and I have to choose among the most powerful of them. It was very challenging for me to decide whether to use the services of T-Mobile or Verizon, but I finally made a choice for Verizon. Oligopolistic competitors can be very difficult for analysis because they usually make different steps according to the steps of their competitors.
Since there are very few competitors in the market, it is very important for oligopolists to bring their actions in accordance with the actions of the competitors. Oligopolists also often sign various agreements with one another in order to control the market. For example, I often see that when T-Mobile introduces new offers, Verizon follows this company with very similar offers. Since I am a consumer, the knowledge of microeconomics can greatly help me to take a choice in different type of the market.
Another concept of microeconomics which I am destined to face is externalities. I often read in newspapers how government does its best to take care of various kinds of externalities. I know many plants which pollute water and atmosphere, and in my opinion, it is very good that government makes such companies pay higher taxes or install purifying systems in order to eliminate the impact of its pollution.
In conclusion, it is necessary to say that microeconomics is one of the disciplines the concepts of which can be seen everywhere. The knowledge of these concepts helps me to make smarter choices in life and understand different phenomena better. All of the consumer decisions are being made on the micro level, and that is why it is very important for every person to have a deep knowledge of microeconomic concepts.
Baumol, William J., John Panzar, and Robert Willig. Contestable Markets and the Theory of Industry Structure, New York: Harcourt Brace Jovanovich. 1982.
Campbell R. McConnell, Stanley L. Brue. Economics: Principles, Problems, and Policies. Eleventh Edition. 1996.
Curwen Peter, Else Peter. Principles of Microeconomics. Unwin Hyman. 1990.
Cullis, J. G. and Jones, P. R. Microeconomics and the public economy: a defence of Leviathan Oxford: Basil Blackwell. 1987.