Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. It is considered a more complete, advanced, and settled science than macroeconomics. It studies what choices people make, what factors influence their choices, and how their decisions affect the goods market by affecting the price, supply, and demand. It analyzes market failure, where the market fails to produce efficient results. Individual demand and supply, individual prices of products, etc. are some examples of microeconomics.
Microeconomics is usually divided into three types;
1. Simple Micro-statics:
Simple micro-statics is the branch of microeconomics that studies the single equilibrium point for several microeconomic variables. It shows the reactions of a consumer towards the consumer and deals with the interaction of demand and supply of single good or variable. It can be explained with the help of the following figure.
In the above figure, price is measured along the y-axis, and quantity of goods is measured along the x-axis respectively. ‘DD’ is the demand curve and ‘SS’ is the supply curve which is intersecting each other at point ‘E’ where ‘OM’ quantity is determined at ‘OP’ price level.
2. Comparative Micro-statics:
Comparative micro-statics refers to the study of two or more equilibrium points for several microeconomic variables. It helps to compare the new and old equilibrium of the same product at different prices or quantities. However, it doesn’t show the process of change from one equilibrium point to another equilibrium point.
In the above figure, quantities and price are measured along the x-axis and y-axis respectively. Here, ‘SS’ is the initial supply curve and ‘DD’ is the initial demand curve which is intersecting each other at point ‘E’ where ‘OM’ quantity is determined at the ‘OP’ price level. The quantity demanded increases at ‘D1D1’ remaining supply curve constant. The supply curve(SS) and demand curve(D1D1) are intersecting each other at point ‘E1’ where ‘OM1’ quantity is formed at the ‘OP1’ price level.
3. Micro Dynamics:
Microdynamics is the branch of microeconomics that deals with two or more equilibriums and explains each and every step of change in equilibrium from one static point to other. There is always change in time. This change brings a change in price and the demand and supply of a number of commodities.
In the above figure, ‘D1D1’ is the initial demand curve and ‘SS’ is the supply curve which is intersecting each other at point ‘E1’ where ‘OQ’ quantity is determined at the ‘OP1’ price level. When the demand increases remaining the supply constant, the price also increases from ‘OP1’ to ‘OP2’. Due to the rise in price, the producer is encouraged to produce and supply more quantities. They supply the commodity equal to ‘OQ4′ at OP2’ price. However, the consumers are ready to pay the price only ‘OP3’ for ‘OQ4’ quantity because of oversupply. The price goes down to ‘OP3’ because of excessive supply. Due to a fall in price, producers supply only ‘OQ2’ quantity at ‘OP3’ price. Again, the price increases from ‘OP3’ to ‘OP4’ because of excess demand over the supply(demand>supply). Again, the producer increases supply. Here, supply excess over demand. Such a process continues in the market until the final equilibrium point ‘E2’ is formed in the market where ‘OQ3’ quantity is determined at the ‘OP5’ price level.