Understanding of Microeconomics Due date: Monday 19 August 2013 David C. Colander, who is the Christian A. Johnson Distinguished Professor of Economics at Middlebury College (David Colander From Wisped, the free encyclopedia), defines microeconomics as, “the study of individual choice, and how is that choice influenced by economic forces. ” Microeconomics is a branch of economics who studies how individuals, households and firms determine to allocate finite resources, like in markets where goods or services are being provided.
It simultaneously examines how these decisions and behaviors affect the supply and demand for goods and services when the prices and demands of them are directly related and influencing each other. One of the Ten Principles of Economics which Vive learnt from Principles of Economics 6th Edition is Governments Can Sometimes Improve Market Outcomes. Governments set and apply rules to maintain the institutions which will directly influence a market economy.
Property rights(Principles of Economics 6th Edition page 1 1) are so vital that without the rights, individuals, households and firms could not be inning, controlling and operating the scarce resources nicely. It’s a way how the invisible hand works too for people to run their economical activities under governments’ given protection. It’s also about
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Externalities, which is the impacts of one person’s actions on the well-being of a bystander (Principles of Economics 6th Edition page 12). There are positive externalities and negative externalities (www. Objectifications. Com). Positive externalities are like when a television program on healthy food improves the publics health indirectly. Negative externalities are cases such as when companies and industries pollute air or waterways during their processes. Pollution, the classic example of a negative externalities of market failure’s cause, is the main point upon the article that Vive found for this assignment.
According to the article news on 25th July 2013, China’s governments decided to spend billions ever five years to tackle the air pollution which is caused by Bunion’s rapid industrialization. The pollution which affects several countries seriously alters the environment and also people’s health level. This is exactly a good example to show how pollution turns to be a typical cause of externalities on market failure. Which is, Microeconomics Principle By Hutchison smog caused by reliance on coal, explosive growth in car ownership, a disregard for environmental laws and indeed the steel and cement industries in China.
And, the causes of the pollution do not need to be responsible for anything when they are creating the negative externalities of government and also people who got influenced by the pollution. For a clearer example, a steel producing firm of China might cause pollutants into the air. While the firm has to pay for materials, electricity, and all other inputs, the individuals and industries around the factory will bear the pollution since it causes them to have lover quality of environment around, higher medical expenses, diminished appearance of fresh air, etc.
Thus the production of steel by the firm has got a negative cost to the people surrounding the factory which is a cost that the firm does not need to be responsible with. To avoid worsening the pollution, sectors that carry out most waste and pollution will be strictly controlled and the air pollution plan will also seek ways to reduce emissions. When negative externalities exist, they can be reduced by using government rule and regulations, taxes, or subsidies, or by using property rights to force companies and individuals to take their responsibilities on their economic activities o maintain a market’s performance.