Microeconomics

The microeconomics is the discipline studying the individuals’ decisions in scarcity conditions.
Scarcity means not only few goods or money but also not enough time or own capacity or any kind of resources.
At the end, every choice implies some kind of scarcity: if you have unlimited resources, you never need to choose between alternatives.

Very often, this choice can be evaluated as: are the costs for it bigger or less than the benefits of it? And the challenge is to find all the costs and benefits associated to the choice.

For example: let’s say I’m sitting on the couch listening to my Hi-Fi set and the song currently playing is one of my favourite: should I get up and turn up the volume or stay sit? (assuming that I have no remote for my Hi-Fi).
The benefit is to enjoy more my favourite song. The cost is the nuisance of leaving the couch.
How to decide?
If someone offers me 1 Cent to get up, I would probably stay where I am but if the offer is 1000 € I would move immediately.
How much would be my minimum price to accept to get up? Let’s say it’s 10 €. For less than it I wouldn’t move.

Now, how much is my maximum price I would pay someone else to raise the volume for me? maybe 5 €?

Then, for me the formula is like this: benefits (to raise the volume) = 5€ < Costs (to raise the volume) = 10 €
So, it would be better to stay sit.

The idea to calculate costs and benefits to describe the human behaviour may look strange.  But:
the Nobel prize Milton Friedman explained that you don’t need to think that people do these calculations but you can make forecasts based on the assumption that people decide as if they did these calculations (in the same way as billiard champions play using the physic laws even if they don’t know them).

This is of course just to give a guide, economic models. Many behaviours cannot be explained by the theory, for example why to vote at the elections, why to become donors, etc. even if they can be partly explained by the common good.

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One thought on “Microeconomics

  1. Pingback: When is good enough? « Look back in respect

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