The term microeconomics is an understated term when it comes to the economic conditions of a person, company or country. macroeconomicsMicroeconomics or microeconomics is an important part of learning economics itself.
What is microeconomics? And why is this word important to understand? Let’s talk about it in the following articles:
Definition of Microeconomics
Microeconomics is a branch of economics that studies how individuals and companies make decisions about the allocation of limited resources to maximize their satisfaction. Microeconomics also studies how these two economic actors interact.
In this field of science, economic actors are divided into three groups: sellers, buyers, or consumers. and business owner These three parties will interact to buy and sell goods and services at a certain price.
The meaning of prices here can appear in many forms, ranging from buying prices or selling prices. rental cost salary and interest for one party This price will be a sacrifice to obtain these goods and services. while the other party The price is an indication of the benefit they will receive from the sale of the goods and services.
Microeconomics is just as important as macroeconomics. Since it is a field of knowledge that consists of various factors taken into account in macroeconomics. Therefore, the discussion of microeconomics is generally more detailed than macroeconomics.
Understanding the concepts of microeconomics is very important for individuals, companies and governments. Understanding this concept of knowledge will help them make economic decisions that can meet their individual needs.
For example, get acquainted with the concept of the relationship between motorcycles (main commodity) and bicycles (substitute) and fuel. (complementary goods) when understanding the concept of the relationship between goods Individuals can switch from motorcycles to regular bicycles when the price of fuel rises. Provided that person’s monthly income will not change.
for companies The concepts of microeconomics can be fundamental to understanding how productivity can be achieved in these companies, for example companies that also operate in the market. oligopoly type More likely to form an alliance
This is because steady demand and a countable number of competitors allow companies in that market to circulate unhealthy competition whether playing with price or supply. The presence of partners is to prevent this unfair competition while maximizing profits.
For governments, knowledge of microeconomics is fundamental to creating effective policies. An example is the implementation of subsidized consumer goods that are needed by the wider community. but for whatever reason These consumer goods can only be produced by one company (monopoly).
Scope of Microeconomics
in microeconomics You will learn the following basic concepts:
- behavior of economic actors when given certain incentives. In this section, you will explore how companies and individuals How to deal with changes in incentives or prices? This includes studying the laws of supply and demand. The employee’s reaction to wage increases, etc.
- utility theoryIn this section, you will explore how economic actors maximize satisfaction. Although their resources are limited. This includes how individuals allocate their hard-earned money to meet needs and desires in order to maximize satisfaction.
- production theoryThe theory of production is a subset of microeconomics that studies how companies try to combine the factors of production they need to maximize their output. Included in this section are how technological developments can increase a company’s production.
- Price theory. Interactions between economic actors in the context of production. (production theory) and consumption (utility theory) in theory form an equilibrium price (equilibrium).
In discussing the above topics, several assumptions have been made:
- The assumption that humans behave rationally, that is, if A > B > C, then A > C.
- Suppose there are limited resources.
- Assumption The law of diminishing returnsIn this law, if one factor is constant The relationship of other factors to that factor increases before eventually decreasing over time.
Examples of Microeconomic Phenomenon
1. Market type
One of the things you will learn in microeconomics is the types of markets such as monopolies, monopolies, monopolies, and two-way monopolies. This type of market directly influences the response of consumers and producers to price changes.
A simple example is that the fuel market in Indonesia is quite a monopoly. This is because 90% of the fuel in this country is supplied by Pertamina in a monopoly market. Since the number of suppliers is limited and the product is in demand. It is no surprise that Indonesians are still buying from Pertamina despite the 25% rise in oil prices.
2. Utility Theory
Utility theory is a macroeconomic theory that addresses how economic actors maximize satisfaction from the consumption of goods and services. Normally, the utility value of consumption of goods and services decreases with the amount of goods and services consumed.
A classic example of this theory is when you exercise and feel thirsty. When drinking the first glass of water, you will instantly feel refreshed and more comfortable. whether consciously or not That feeling of refreshment will diminish as you drink your second and third glasses of water until you can’t drink any more in the fifth or sixth.
3. Production Theory
The subchapter above states that technology can make production processes more efficient and effective. An example is the use of cloud technology and the internet as it is today.
With the help of technologies such as products from Google that can be shared directly (Spreadsheets, Google Docs, etc.), we now don’t need to work in an office. but able to work from home or anywhere It also indirectly means that some companies don’t need to build or rent offices to operate. This makes it more cost-effective, easy, isn’t it?
Examples of Policies Related to Microeconomics
To some extent, governments need to seriously formulate policies related to microeconomics. These policies are generally in the form of rules or regulations that should be followed by those involved in the economy. Here are some examples of policies related to microeconomics:
1. Setting a regional minimum wage (UMR)
Surely you are familiar with the term regional minimum wage (UMR), provincial minimum wage (UMP), or municipal minimum wage (UMK). arbitrary
You have to remember that salary is the price employees are entitled to receive for the services they “sell” to the company, so the required salary must be commensurate with their hard work. employee performance And it is adjusted to the cost of living in the area where he lives, so the UMR for each region must be different.
2. Setting the maximum retail price (HET)
In addition to salary Governments within the Ministry of Commerce often set policies regarding the maximum retail price (HET), or minimum retail price, for certain commodities. The goal is to control the prices of these products in the market. for the economy to continue as it should
The maximum retail price (HET), also known as the ceiling price in English, is the maximum price set for retailers selling certain products. The supply of these products is usually limited. But it’s important for the community to own it. Unlike a monopoly There may be many suppliers of this product. But the number of proposals does not correspond to the demand.
Examples of products under HET include rice. But the amount of rice production is insufficient to support the 270 million population throughout the year. Due to the nature of the rice that can be harvested only at certain times
According to the Ministry of Trade Regulation No. 57/M-DAG/PER/8/2017 Regarding setting the maximum retail price for rice, the HET value for medium rice ranges from IDR 9,450-IDR 10,250, while the HET value for premium rice ranges from IDR 12,800-13,600. This price difference is adjusted by area. In addition to rice, HET policies are often imposed on other foods such as cooking oil, sugar and beef, aiming to protect consumers’ purchasing power.
In contrast to HET, governments often use a minimum purchase price policy to protect producers. This policy is typically used when a product is in short supply to keep prices down.
An example is the purchase price of corn husks at the factory. Corn husks are essential materials in the production of various agricultural products. Whether it’s grazing for meat or something else. Flat corn is produced by farmers and sold to factories in need.
when there is oversupply in the market The government within the Ministry of Agriculture is required to set a minimum purchase price. This prevents the farmers from losing money and continuing to sell their corn to the mills. On the other hand, the minimum purchase price must also take into account the financial condition of the mills involved.
Differences of Macroeconomics and Microeconomics
The extent to which the discussion of microeconomics differs from that of macroeconomics. If microeconomics addresses how economic actors make decisions in order to maximize their satisfaction Macroeconomics focuses on how the economy is driven as a whole. including how the government seeks the welfare of the people
This different focus ends with a discussion of the issues. Macroeconomic issues are those that have a regional or national nature, such as poverty, food security, education, human development indexes. inflationeconomic development foreign debt, etc.
However, governments also need to understand the concept of microeconomics for the welfare of the people. Therefore, the understanding of these two fields of economics must be used in parallel and complement each other.