Types Of Micro Economics

 

The analysis of microeconomics is always affected by time period. But there are still some economists who do not believe the time value in microeconomics analysis. Based upon the equilibrium of microeconomics in the different situation and relationship between time and different economic models, the microeconomics is divided into three different types, namely Microsatics, Comparative Micro statics and Micro Dynamics.

1)   Micro Static:

Demand and supply are two principal variables that determine the equilibrium level for market. The quantity demanded of a good at a time is generally considered to be related to the price of that particular time. Same way supply is also related to price at particular static time. Thus microeconomics tries to find out the equality of demand and supply at a particular point of time or static time. This static analysis is the study of static relationship between two variable called demand and supply, which is known by micro static. In other words, if the functional relationship is established between two principles variable at a same period of time, such analysis is known by micro static. This situation is also known by equilibrium situation of variables. This equilibrium determines the equilibrium price and quantity. According to Schumpeter, “By static analysis, we mean, method of dealing with economic phenomena that tries to established relations between elements of the economic systems-prices and quantities of commodities all of which have the same time subscript, that is to say, refer to the same point of time.” He further said, “Static analysis tries to establish relation between elements of the economic system which refer to the same point of time.”

The concept of micro static is given below with the help of diagram.

In the diagram given above, DD shows demand curve and SS shows supply curve. Both curves intersect at point ‘E’ that gives the equilibrium price- P and quantity- Q at particular time period. This is static analysis.

2)   Comparative micro static:

Micro static explains about the equilibrium point that is obtained by two co- operant factors that is demand and supply, under the static or given period of time. Thus equilibrium is obtained when demand equals supply under the condition of ‘other things remaining same’ or ‘no change’. When variables change, the initial equilibrium level will be disturbed. This brings the process of disequilibria and it continues till new equilibrium is obtained. In this background it is essential to analyze the comparison between these two equilibrium levels. The comparison between these two different equilibriums is studied under comparative micro-statistics. It compares one equilibrium with other equilibrium but does not identify the process of disequilibria that occurs. According to Prof. Schumpeter; “The comparative analysis of two equilibrium positions may be defined as comparative static analysis. Since, it studies the alternation in the equilibrium position corresponding to an alternation in a single datum.”

For example, suppose that income of consumer changes that affects to demand of consumer and regarding supply, initial equilibrium distributes and new equilibrium is obtained. Same way due to change in the technology, production function, then cost and hence supply change and this affects the initial equilibrium. Thus in both cases- either demand changes or supply changes, two equilibrium appear- initial and later. Comparative micro static studies those two equilibrium.

The diagram given explains the comparative micro static equilibrium. In the diagram, demand curve DD and supply curve SS gives the equilibrium point ‘E’ at price- P and quantity- Q. due to changes in the demand, it shifts to D1D1 and new equilibrium point ‘E1’ is obtained with the same supply curve SS. This new equilibrium gives new price- P1 and quantity- Q1. Comparative micro static studies the two equilibrium points ‘E’ & ‘E1’.

3)   Micro dynamics

Study of micro-static shows the state of equilibrium through demand supply analysis under the assumption of constant time where no changes in variables take place. Same way study of comparative micro static shows the comparison between two equilibriums due to partial change in factors and time period. But the world and time are neither static nor they partially change. The real world is dynamic. The change in time and other factors are dynamic and they lead to change in demand and supply hence change in equilibrium. Thus micro dynamics refer to a position by which the system passes from one position of equilibrium to other. It is very essential to know change and process of change in equilibrium. In this analysis with the change in pace of time price of commodity also changes and that brings the change in demand and supply. Those changes bring the true picture of real world economy at different prices at different time. According to J. A. Schumpeter, “we call a relation dynamic if it connects economies quantities that differ to different points of time.” W. T. Baumol said, “Economic dynamics to the study of economic phenomena in relation to preceding and succeeding events.” The other most important aspect of micro dynamic is that it deals with disequilibria condition also. The analysis chases process of change time by time. It can explain state of being disequilibria and how the disequilibria’s move towards equilibrium.

 

In the above figure, quantity demand and supply is puts on X-axis and Y-axis represents price. DD is initial demand curve SS shows supply. Demand curve DD and supply curve SS intersects each other at point E. This is actual equilibrium. At the initial equilibrium point E, quantity demand/supply and price are OQ and OP respectively. Suppose, demand curve shifts from DD to D’D’ due to changes in micro variables which raise price level from OP to OP,. Firms expect this price level prevails at t, and t2 time period of OQ and OQ, quantity demand and quantity supply respectively. But the demand curve D’D’ shows that OQ, quantity can be sold only at OP2 price at t3 and t4 time period. Therefore OP2 becomes the equilibrium price for that time period. In the t4 and t5 time, firm will sale OQ2 quantity at OP2 price. But OQ2 quantity can be sold at higher price ‘OP3 at t5 time period .This induces them to produce more quantity of goods (i.e; OQ3) in the tf, time period. OQ3 quantity can be sold at the lower price ‘OP,)’.

Therefore, in the nth time period, the producers prefer to produce lower quantity ‘OQ4‘. Here quantity supplied is just equal to quantity demanded, where new demand curve (D’D’) and original supply curve (SS) intersect at E’ point where the equilibrium quantity OQ4 and price OP4 are determined.

One thought on “Types Of Micro Economics”

  1. I wanted to type a quick note in order to appreciate you for all of the nice tips and hints you are writing here. My time consuming internet investigation has at the end been paid with reasonable ideas to go over with my best friends. I would claim that many of us site visitors are undeniably lucky to be in a magnificent community with very many special individuals with useful things. I feel very much blessed to have seen the site and look forward to really more awesome times reading here. Thanks a lot again for all the details.

Leave a Reply

Your email address will not be published. Required fields are marked *