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Introduction to Microeconomics
The concept of microeconomics describes how and why the values of various commodities vary, how individuals organize and work together, and how they arrive at more logical or effective decisions. Microeconomics is the study of the probabilities that result from people’s decisions in reaction to changes in incentives, resources, pricing, and/or production methods.
Individual actors are sometimes split into microeconomic subgroups, such as buyers, sellers, and business owners. These groups employ money and interest rates as a pricing mechanism for coordination, creating the supply and demand for resources.
Types Of Economy
Centrally Planned Economy
All major economic activity in a centrally planned economy is coordinated by the government or another central authority. All important decisions concerning the production, trade, and use of goods and services are made by the government. In addition to allocating resources in a specific manner, the central authority’s objective is to distribute the optimal combination of goods and services that the community at large finds desirable. The welfare of society is the primary goal.
In a market economy, the market sets the terms for all economic activity. People freely interact while pursuing different economic goals in a market.
Stated differently, a market is a collection of agreements between economic players that permit the unrestricted exchange of commodities and services. Furthermore, the private sector exerts influence while the government refrains from interfering. The dynamics of supply and demand as well as consumer behavior in the market drive the economy. Profit maximization is the main objective.
A mixed economy is one in which the public and private sectors jointly own and run its productive components. The primary goals are to advance social welfare in the public sector and maximize profits in the private sector. Fundamental difficulties are addressed by both the central planning authority and the price system.