The main areas of microeconomics are micro production, micro trading, micro consumption, and micro economics of money. As far as micro economics of money is concerned, it studies the way in which money is made and its effects on the economy. Money, as we all know, plays a very important role in the overall economy and is one of the driving forces behind the economy.
As far as microeconomics of production is concerned, it is concerned with production processes, costs of production, technology transfer, and innovation. Microeconomists study the effect of macro factors like inflation, unemployment, fiscal deflation, fiscal excessiveness, central bank policy, and central economic policies on the level of production. They also study the impact of political instability, international trade, and global growth on the level of production. This branch of microeconomics helps in understanding the relationship among economic activity, decisions, and the economy.
The microeconomics of trading is concerned with the movement of microorganisms in the market place. Micro traders do not rely on central economic indicators and take the advantage of variances in price levels between individual vendors and between market participants. The micro trader may buy and sell at times when the market is less volatile and at times when the market is more volatile. For example, if the price level is low and there is no inflation, the micro-economic theory is that a trader should buy in order to margin his profits and sell when the price level rises.
Another micro-economic theory is the theory of demand and supply. In this theory, the quantity of money that is available to be spent by an agent is determined by the demand and supply conditions in the economy. A micro-economic concept called exogenous budget deficit relies on the capacity of the national currency to meet the demand of some economic activity. For instance, suppose that a new firm starts in the country, and after getting a certain number of workers, its business starts to expand. The firm is able to purchase a lot of U.S. Treasuries because there is a high level of domestic spending and there are sufficient liquid financial resources.
One of the problems of micro economics is the tendency for micro economic theories to become unsustainable because of the increasing constraints it faces as a working model in the real economy. Because there is a tendency for equilibrium to disappear in the real economy, micro-economic concepts like the theory of demand and supply become inadequate as the government decides how to spend the national money. Also, because there is a tendency for economy-wide equilibrium to evaporate, a major portion of the economy’s potential growth is lost and that portion is taken up by the inflation of the economy.
There is also a tendency for micro economic theories to become counterproductive because they are usually implemented by central banks in an attempt to control the national money supply. The purpose of central banks is to stabilize the economy and avoid fluctuations, but they usually do this in a very inefficient way. The practice of trying to control the money supply has not proven successful in stabilizing the economy over the long run. Central banks can increase interest rates when the economy is experiencing excess demand, but they cannot decrease the amount of money that is in the economy. In short, they cannot adjust the supply of money when demand outstrips supply, leading to hyperinflation or a severe depression.
Microeconomics is still a branch of economic science that is just beginning to find its place in the modern world. It has many uses in modern business practices as well as in the economic structure of a country. However, it should be remembered that this branch of economic science does not have a firm grasp on all of the micro-elements of the market. It is best used as a broad brush with which to paint the picture of microeconomics.
