Microeconomics is the branch of economics concerned with how individual people and businesses make decisions regarding resource allocation. According to Dixit (2014), microeconomics involves the study of “how consumers choose what goods and services to buy, how producers make decisions to meet these demands, and how the two sides interact.” Microeconomics follows some fundamental principles in determining how individuals think in circumstances that involve economic or financial situations. These principles include utility maximization, opportunity cost, diminishing marginal utility, and supply and demand. The study of principles of microeconomics in ENCU 202 brings forth some insights. These include better decision-making, optimum use of resources, and a better understanding of human behavior. Insights gained from learning principles of microeconomics in ENCU 202 are applicable from both a consumer’s view and a manager’s view. Therefore, their analysis will focus on how useful these insights are in a manager's role or a consumer’s role.
Insights Gained
Decision-making is an essential part of our lives. Microeconomics applies to every decision one makes. These decisions are guided by conditions that have been drawn from the principles of microeconomics. Kolmar (2017) explains how the decision-making process applies knowledge gained from microeconomics by using principles in successive steps of thought. Decision-making sets to ensure maximum resource utilization. It considers the fact that one has to forego some things, thereby suffering an opportunity cost due to a decision. A person will also lose satisfaction with their decision as time goes by. This person will again have to consider the number of resources available versus the number of resources needed for each decision made, thereby checking the supply versus the demand. A consumer’s decision-making process analyses the purchases versus the funds available. Therefore, principles of microeconomics enable a consumer to make purchase decisions that align with his supply of funds. These principles also enable a manager to make decisions that utilize available resources to produce maximum yield.
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A mastery of microeconomics principles aims at enabling individuals to make choices that center on optimum use of available resources. According to Mark (2019) and Kolmar (2017), the principle of rationality is obeyed when allocating resources such that individuals use the resources they own in the best way . An individual will likely use available resources optimally if they consider more than one microeconomics principle when making choices. An analysis of opportunity cost will ensure the least cost is incurred. An examination of marginal utility versus marginal cost will ensure that benefits reaped from a choice are long-lasting. Marginal utility has to exceed marginal cost so that satisfaction enjoyed due to allocating resources in a particular manner lasts an acceptable amount of time. When it comes to supply and demand, one must ensure that resource allocation produces maximum yield while sticking to supply and demand constraints. These constraints include a limited supply of resources and a balanced supply and demand equilibrium. For a consumer, principles of microeconomics are useful in ensuring funds are optimally used. For a manager, the principles enable him to allocate limited resources to yield maximum returns. The resources that are to be optimized include time, human labor, and any other equipment at the manager’s disposal.
Economics is a social science that focuses on how human beings make choices. We can therefore infer that economics focuses on human behavior in terms of the monetary decisions made. Kolmar (2017) explain how microeconomic principles are applied in analyzing human behavior. Principles of microeconomics provide knowledge that informs the choices we make as human beings. Remember that microeconomics studies “how consumers choose what goods and services to buy, how producers make decisions to meet these demands, and how the two sides interact” (Dixit, 2014). It means that microeconomics analyses consumers' purchase behavior, producers' production behavior, the supply pattern of suppliers, and the interaction between these groups. Learning how choices are arrived at enables one to know how people reason when faced with various options. Understanding the microeconomy principles is useful to the consumer in determining how best to satisfy his wants while not falling prey to popular trends or other non-essential incentives. For managers, the principles enable them to determine consumer demands and how best to meet them.
Learning Implications
Better Decision Making
Consumers make decisions that focus on what they will purchase. As a consumer, decisions are constrained by the budget. From Kolmar (2017), we see that decisions have to aim at fully utilizing available resources to reap the most benefit. A purchase will only occur if the cost incurred is less than or equal to the budget amount. Therefore, the consideration given is how to fully utilize the scarce resource, which is money to benefit the most. The decision made will also factor in the wants that will be foregone for each of the possibilities available. This consideration points to an analysis of opportunity costs incurred once a decision is reached. Another consideration will be how much satisfaction I get from the purchase, as this satisfaction is bound to diminish over time. My purchase gives me joy as long as marginal utility is more significant than marginal cost. Therefore, the decision reached will consider three principles: utility maximization, opportunity cost, and diminishing marginal utility.
A manager’s decision-making is concerned with how to get the most output using available resources. Resources here include time, labor, and other relevant resources depending on what is being managed. Ahuja (2017) does an in-depth analysis of managerial decision-making, highlighting what I need to look at when making decisions. As a manager, the concern is how to utilize limited resources optimally. Tasks have to be achieved within the available time, and they can only be done using available resources. Thus, the concern factored is utility maximization. In a price system or market system, relative prices constantly change with demand and supply changes. Changes in demand and supply create a disequilibrium forcing the market price and quantity to change to a new equilibrium. As a manager, I have to evaluate the demand and supply changes to make sure price changes favor my products. Demand analysis will enable me to forecast the demand levels for certain periods. Principles of microeconomics also teach me how to balance costs and benefits. As a manager, I can now identify implicit costs and analyze the way of minimizing these costs. I can also calculate opportunity costs of available capital, thereby allowing me to make better decisions on how the capital will be used.
Optimum Use of Resources
Resources that matter to a consumer are mainly monetary. As a consumer, I have to make choices for which the money invested reaps the most benefit. The principle of rationality highlighted by Mark (2019) and Kolmar (2017) states that individuals will side with decisions that give them the highest amount of personal utility. When making a purchase, I will examine how long the purchase satisfies my wants, what I will miss out on by making this purchase and the funds available versus the funds needed to make the purchase. If the purchase is complete, I will have optimally utilized available funds to meet the above conditions. Therefore, I have factored in how long marginal utility exceeds marginal cost, the least opportunity cost, and the supply of funds meets the demand.
A manager’s concern when allocating resources is that there is the maximum yield from a particular allocation. Resources under a manager’s watch are limited in supply. As a manager, I will aim to reap maximum output by ensuring that my resource allocation is optimal. This is in line with the principle of rationality as highlighted by Kolmar (2017). This resource allocation will consider an assignment with the least opportunity cost. It will also have a marginal utility that is more significant than the marginal cost. It will limit resource utilization to available supply and ensure optimum use of available resources.
Better Understanding of Human Behavior
A consumer with knowledge of the principles of microeconomics already knows how to make informed decisions. Kolmar (2017) explains the things that one can draw about human behavior using microeconomics. This can be used by a consumer to guide his approach to decision making. Understanding human behavior is mainly dependent on analysis of diminishing marginal utility. When making a purchase, I should not condider how popular or affordable a good or service is. I have to look at how long the marginal utility exceeds the marginal cost, or else the opportunity cost suffered would be more significant because the satisfaction diminished at a faster rate.
A manager’s understanding of human behavior is useful when analyzing consumer demands. A manager’s understanding of how consumers make purchase choices contributes to his decisions. Kolmar (2017) point out that an understanding of consumer demands is useful when predicting trends in consumer demands. An understanding of consumer demands will enable me predict the demand levels at various times of the year and tailor my production to meet these demands. My understanding of diminishing marginal utility would enable me to follow trends in consumer demands. The analysis of supply and demand would enable me to tell consumer taste and ability to buy.
Application to Practice
For each insight gained, there is a way in which it can be put into use. Better decision-making can be applied when deciding what apartment to rent. For each apartment option, I will look at how much it will cost me, what I will forego to meet that cost, whether available funds meet the price range and the diminishing marginal utility of the apartment.
An application to practice for optimum resource utilization can be seen in a manager who oversees resource allocation to tasks. The manager is constrained by the number of available resources, time, and the maximum yield each task produces when given all the necessary resources. In the manager’s role, I will have to determine assignments that maximize resource utilization while bringing in the most output. Finally, an understanding of human behavior would come in handy when managing a supermarket. Understanding human behavior would enable me to determine trends in consumer demand as affected by consumer taste and ability to buy. I will therefore adjust stocks depending on what goods have high demand.
References
Ahuja, H. L. (2017). Managerial Economics (Analysis of Managerial Decision Making). S. Chand Publishing .
Dixit, A. (2014). 1. What and why of microeconomics. Microeconomics: A Very Short Introduction , 1-4. https://doi.org/10.1093/actrade/9780199689378.003.0001
Kolmar, M. (2017). Principles of Microeconomics. Springer International Publishing AG .
Mack, A. (2019). Principles of Microeconomics 2.
