Microeconomics is considered one of the primary subject of
social science of economics. It discusses of mostly the conduct of consumers,
individuals, firms and also industries. It is a study that examines how
household, firms, and individuals make decisions to allocate the limited
resources in markets where goods and services are being bought and sold. Microeconomics
also focus on how these individual`s behavior and decisions affect the supply
and demand for goods and services which determine how these prices are set in
the market. Microeconomics has numerous concepts that apply to a real-world
situation. It has always been a fact that the availability of resources is
always limited to the world eventhough it varies in amounts. On the contrary,
individuals and firms have unlimited needs and wants which is difficult for
economists to come up with solutions to fully utilise the resources. Therefore,
one must learn to prioritize their needs and wants in order to use the
resources efficiently. There are numerous numbers of microeconomics concepts
that can be applied in real world situations. In conjunction, there are some important
concepts that are relevant to this discussion which is scarcity, demand and
supply, elasicity and barriers to entry.
First of all, one of the
most evident real life implications of microeconomics concepts in our daily
routine is the scarcity. Scarcity is the primary key to economic problem as
apparently individuals needs and wants are always infinity in this world with
limited resources. In this society, there will always be insufficient resources to fulfill all
human needs and wants. On the other hand, scarcity occurs when individuals want
more of something than it is available which forces them to make a choice. For
instance, fresh water and food supply are always scarce in Africa. Which means
that, Africa has been facing the shortage of fresh water and food supply in
their country. Scarcity in Africa has always been serious where there are often
situations that there is not enough water to meet all demands. In fact,
Africans are known to be a chronically water stressed country. According to the
articles I found online, economics development has greatly affected the water
supply in Africa. Experts say that the shortage of fresh water and food supply
could be salvaged if more water treatments are
given. Crops can also grow better with fresher water and food supply will
generally increase too. Another way to relieve water stress is to increase the
capacity of water storage. Some experts also say that reservation of fresh
water will be more sustainable if large dam projects are being carried out.
Supply and demand is an economic model to determine price in
a market. Supply and demand are perhaps the
backbone of an economy in market. The law of supply and demand is not a law,
instead it defines the interaction between the availability of a good and the
wants for that good has on price. Generally if there is a high demand on a
product but with a low supply, the price will be high. In contrast, the higher
the supply for the product, the lower the demand will be, and the price will also
be low too. Let`s say, Apple Iphone 5th generation, when it was launched there were people lining up outside
the stores wanting to get the phone despite the low supply of it. Which is why
the price of the product could be maintained at a high price. In short, the
demand for the Apple Ipone 5 is high but with a low supply which makes people
to queue outside wanting to get the phone as quick as possible. This allow
Apple stores to be able to set the price of the phone high and being maintained.
As time goes by, the demand for Iphone5 will drop as new phones have been
launched. At this time, low demand for the product that eventually leads to low
supply of it and so the price will also drop.
The
picture explained the number of millions of iphone sales for the first three
days launch from year 2008 to 2012
The graph above shows the supply and
demand for iphone 5
Elasticity is the measurement of how amending an economic
variable affects the rest. There are two variables that respond differently to
changes which are elastic variable and inelastic variable. Elastic variable
responds a lot to small changes whereby inelastic variable does not respond
much to changes. In short, elasticity is the
measure of sensitivity of a variable. It refers to the degree where consumers
or producers change their demand and supply in response to the price or income changes. The
most evident real life example would be gasoline. If there is a very large
change in the price, only a small amount of change will appear in the quantity
demanded. Thus, gasoline is relatively inelastic. As the price of the Petronas gasoline
increases, the quantity demanded for it will not decrease very much. This is
because there are not many good substitutes for gasoline that will make
consumers to buy even if it is at high price. This explains why gasoline is
described as inelastic variable. On the other hand, elastic goods and
services have numerous numbers of substitutes. When an elastic good or
service`s price decreases, the quantity demanded of that good will increase
very quickly. For example, Perodua decrease the price of its car during every
June of the year, the number of demand will increase drastically as the price
decreases. This explains that the elasticity of Perodua cars is elastic.
The picture above shows us that Perodua is
having a promotion for June 2013
The
picture above tells us that certain petrol station offers a 15cents off for
every litre pumped
Furthermore, barriers to
entry exist because of government intervention and they occur naturally within
the business world. The purpose of barriers to entry is mainly to improvise
industry regulation, conducting special tax to benefit existing firms and also to
apply legislative limitations on new firms. In another way, it benefits
existing firms operating in the market as though to prevent the existing firm’s
profits and revenues from being snatched away by new rivals. According to Michael Porter, markets are classified
into four general cases, which are high barrier to entry and high exit barrier,
high barrier to entry and low exit barrier, low barrier to entry and high exit
barrier and low barrier to entry and low exit barrier. Markets with high
barrier to entry have very few competitors and has high profit margins. This
makes them to be a natural monopoly. Monopoly is an
industry that consists of only one firm that sells good wthout substitutes.
Tenaga Nasional Berhad (TNB) is the best example of monopoly firm in Malaysia. It
is the only one firm in Malaysia that supplies electricity
to every house holds. In an oligopoly, there are only a few companies that sell
the same goods and services. The group of companies controls the price of the
goods or services. Oligopolistic companies produce goods and services which are
almost identical. One of the examples of an oligopolistic firm in Malaysia is
Digi telecommunication. There are only a few telecommunication firms in
Malaysia which has made Digi an oligopoly company. In addition, monopolistic differs
from perfect competition in ways that all companies produce the same but not
perfectly substitutable products. All of these firms are profit maximizer. One
of the example of monopolistic firm is Apple store that sells Iphone as they
have many substitutable goods like Samsung or Nokia existing. Last but not
least, perfect competition is a market structure whereby all firms are selling
identical product and being characterized as a free entry and exit industry.
The
graph above illustrates the financial data of Tenaga Nasional Berhad (TNB) from
year 2004 to 2010
Barriers to entry
Economics
may seem to be a subject full with theories and calculations, but it actually applies
in our daily life and real world. Economics studies how human and firms
interact with each other in every ways to satisfy their needs and wants. To
illustrate this, it is important to understand the applications of
microeconomics in real world to allow us to be rational in decision-making and
make sure every decisions made are beneficial in every aspects of our life. Hence,
economics plays a key role in giving you new view on some of the most
challenging problems the world faced today.
