Microeconomics

Microeconomics

Microeconomics is the branch of economics dealing with the economic matters of the individual or firm. Microeconomists would deal with such issues as a firm’s break even point, its fixed and variable costs, and if and when a firm should cease its operations.

Microeconomics also accords importance to types of markets, logically since the niche a business occupies determines its pricing policies. In a competitive market, no particular company has any power as to price setting. In that sense, firms are price takers; price is determined by the market (demand and supply). An exception is if the firm is able to distinguish itself by its product, if the product is unique, then the producer has some say. Any one firm is free to enter and exit the industry.

A monopolistic market has a few firms; it is in between a competitive market and a perfect monopoly. Monopolistic industries have barriers to entry, limiting the number of firms that have access to the market niche. A perfect monopoly has decision-making power over prices it sets, since it is the industry. In some countries, such as Canada, there are laws to protect the population from abuse that could stem from such a situation, but in developed countries there usually are few troubles due to monopolies.

An important part of economics is game theory, or how individuals make strategic decisions. A known conundrum in this theme is better known as the Prisoner’s Dilemma, and is thought in introductory political science as well as economics courses. Two prisoners are being interrogated and face serious charges, but there is insufficient evidence against them. If both keep quiet, they both go free. If one talks while the other says nothing, the one who talked gets a lighter sentence and his duped companion gets a heavier one. If they both talk, they both get a medium sentence.

Economics. Economics is extremely useful as a form of employment for economists (John Kenneth Galbraith). Megan Jorgensen (Elena)

In this case, the dominated strategy would be to remain quiet. There is the problem of trust and that they cannot communicate with each other, but more importantly to talk would be better for either of them, because it would reduce the burden of consequences. The Nash equilibrium is for both to betray their accomplice. The Nash equilibrium refers to the actions of players in a game that strategically take into account the other players’ likely moves. The paradigm is often used in economics when firms set prices.

Utility is also a microeconomic concept, it refers to the amount of happiness one derives from an activity, measured in utils. Utils decrease with each repetition of the activity, called diminishing marginal utility. One encounters such decreasing utility when one compares the amount of pleasure derived from the first cookie after one has been hungry for many hours, to cookie number 48 long after one has achieved satiation.

The author makes an interesting point about the relation between problem solving in academia and the real business world (Porter, 1998). He points out that geographical parameters all but vanished from his contemporaries’ economic analysis, due to globalization and its impact on productivity growth. Outsourcing attenuated the significance of location without eliminating it.

He takes a rather optimistic approach, suggesting that almost any industry business can achieve success with the correct methodology and if they sell something that is unavailable elsewhere.

Further, a firm’s prosperity depends on its securing of resources such as human capital, a condition that is conducive in Quebec given the province’s education policy. Although many (Universite du Quebec a Montreal) UQAM and UdM (Universite de Montreal) students protested Harper’s budget adjustments, tuition for residents is much more affordable than the United States.

Geography preconditions transportation, which along with technology add to the list required elements. Defining clusters as a conglomeration of firms in related industries, Porter mentions the examples of Wall Street, Hollywood and High Point for the United States, perhaps for French Canada the correspondents would be Mont-Tremblant and Montreal’s interconnected underground shopping malls network. Cluster theory outlines gains such as improvements in information flow, reduced transaction cost, and the old strength of numbers rule. Thus, the article conveys the argument that clustering provides a competitive advantage, despite the superfluous competition that other companies entail.

Reference:

Porter, M.E. (1998). The Adam Smith address: Location, clusters, and the “New” microeconomics of competition. National Association for Business Economics, January, 7-13.

Microeconomics: Real World

The author makes an interesting point about the relation between problem solving in academia and the real business world (Porter, 1998). He points out that geographical parameters all but vanished from his contemporaries’ economic analysis, due to globalization and its impact on productivity growth.

Outsourcing attenuated the significance of location without eliminating it. He takes a rather optimistic approach, suggesting that almost any industry business can achieve success with the correct methodology and if they sell something that is unavailable elsewhere.

Further, a firm’s prosperity depends on its securing of resources such as human capital, a condition that is conducive in Quebec given the province’s education policy. Although many (Universite du Quebec a Montreal) UQAM and UdM (Universite de Montreal) students protested Harper’s budget adjustments, tuition for residents is much more affordable than the United States.

Geography preconditions transportation, which along with technology add to the list required elements. Defining clusters as a conglomeration of firms in related industries, Porter mentions the examples of Wall Street, Hollywood and High Point for the United States, perhaps for French Canada the correspondents would be Mont-Tremblant and Montreal’s interconnected underground shopping malls network.

Cluster theory outlines gains such as improvements in information flow, reduced transaction cost, and the old strength of numbers rule.  Thus, the article conveys the argument that clustering provides a competitive advantage, despite the superfluous competition that other companies entail.

Reference:

Porter, M.E. (1998). The Adam Smith address: Location, clusters, and the  “New” microeconomics of competition. National Association for Business Economics, January, 7-13.

Many of us like to think of financial economics as a science, but complex events like the financial crisis suggest that this conceit may be more wishful thinking than reality (Andrew Lo). Photo: Megan Jorgensen (Elena)