What is microeconomics

Microeconomics (from the Greek words “micro” - small and “oikonomia” - management of the economy) considers the economic activities of the primary economic agents (firms, consumers, employees, owners of capital, landowners, individual entrepreneurs). She explains how and why economic decisions are made at the level of these cells, for example, shows how firms allocate their resources for different purposes; how workers decide where and how much they need to work; how consumers make purchasing decisions and how they are influenced by changes in prices and incomes.

Microeconomics studies the relationship between entrepreneurs and employees, between entrepreneurs themselves (competition), as well as between sellers and buyers. All these relationships are realized through the prices of factors of production and economic benefits. Therefore, in the center of microeconomic analysis is the mechanism of market pricing.

An important aspect of microeconomic theory is the interaction of economic entities in the process of formation of larger structures - markets for specific goods or, as they are also called, industry markets (grain, cars, educational services, etc.).

Microeconomics helps to understand the patterns of development of a particular industry and services, how producers and consumers interact with each other in the markets of certain goods. She explains how the prices of clothes and cars, oil and grain, the services of a lawyer and a stockbroker are set; how the salary level is determined and what determines it; what funds are invested by entrepreneurs in the production of certain goods; how many and why are produced in the economy of various goods and who gets them. In short, microeconomics formulates and explains a number of laws: the rarity of goods, supply and demand, diminishing marginal utility, diminishing returns from production factors, etc.

All this knowledge is necessary for almost any literate person to understand the complex world of economic relations between people, the formation of economic thinking.

Thus, microeconomics is a part of economics that investigates the behavior of individual economic actors in the process of making an economic choice.

There are other definitions of microeconomics, which are as follows:

• 1)    microeconomics studies the processes of economic decision making by individual economic actors;

• 2)    the task of microeconomics is to analyze the interaction of economic entities in individual markets;

• 3)    in microeconomics, specific economic units are investigated: a separate industry, firm or economic indicators of their activity in order to consider specific components of the economic system.

The main subjects of microeconomics are consumers, producers, business organizations and households.

The main goal of economic actors is to increase wealth. Since the resources available to society are limited, individual economic units must make four fundamental economic choices:

• •    What should be produced and in what quantity?

• •    how to produce?

• •    Who should do what work?

• •    for whom the production results should be intended?

The choice is made among limited resources, which can alternatively be used for the production of various goods and services and then distributed for consumption in the present and future.

Microeconomics has not only a specific subject, but also a special method of research. The word "method" in translation from Greek means "the path to something." With reference to microeconomics, study methods are a way of knowing the motives of behavior of economic subjects and the laws of economic activity.

Depending on the approach to explaining the behavior of economic entities, microeconomic theory is divided into positive and normative. Positive microeconomics studies the facts and relationships between these facts. Regulatory microeconomics offers recipes for action, determines which specific conditions or aspects of the economy are desirable or undesirable. The identification of positive and regulatory microeconomics serves as a starting point in the methodology of microeconomics. If the main methods of cognition of positive microeconomics are the priority of the needs of economic entities, the limiting analysis and the equilibrium approach, then the normative microeconomics uses primarily verbal, mathematical and graphical modeling.

Of particular interest in the study of microeconomics is modeling, i.e. a simplified reflection of economic reality using equations and graphs describing the interaction of various factors. An economic model usually seeks to explain how economic conditions affect key economic variables.

A deeper understanding of mathematical modeling involves the use of functions that reflect in a mathematical form the dependence of one set of variables on another, and graphs depicting the relationship between two or more variables. These methods of economics are widely used in microeconomics in theories of demand, supply and consumer choice.

The basis for building models is economic data or, in other words, facts, expressed as numbers, that provide information about economic variables.

A mathematical form is a function that reflects in algebraic form the dependence of one set of variables on another:

y = f (x).

This formula reflects the dependence of the variable y on the variable x, in which each value of the variable x corresponds to a single value of the variable y.

The second form of modeling uses to depict dependencies between two or more variables of graphs constructed in two-dimensional space. A graph is an image of the relationship between two variables.

When the values of both variables change in the same direction, there is a positive, or direct, relationship between them. It is depicted on the graph as an ascending line.

If the values of both variables change in the opposite direction, there is a negative, or inverse, relationship between them. It is depicted on the chart as a descending line.

In addition, the slope of the functions may change, moving from positive to negative and vice versa. To determine the level of the slope of the function, it is necessary to draw a tangent line in the vicinity of this point.

Connection of a model with an objective economic reality

Positive microeconomics studies the facts and dependencies between these factors and answers the question: what is or can be. Regulatory microeconomics offers recipes for action, determines which conditions of the economy are desirable or undesirable, and answers the question what should be. The distinction between microeconomics for positive and normative is the starting point in the methodology of microeconomic theory. Advocates of a positive approach to the study of economic phenomena and processes argue that microeconomics is a "pure" science, similar to other natural sciences. On this basis, she must study phenomena in the same manner as exact natural sciences. Its task, in the opinion of the positivists, is to portray economic phenomena as they are in reality. Below are the main methods for studying the reality of positive microeconomic theory.

• 1.    Limit analysis, or marginalism, the essence of which is that economic phenomena are analyzed not only in a complete (study of general, average values), but also in a constantly changing form.

• 2.    Functional analysis, suggesting the following research sequence: first, the typical quality of the phenomenon is detected, then factors affecting this quality are determined. And finally, the way of interrelation of factors with previously established quality is determined - function. A value is considered to be variable if it changes its value under the influence of certain factors. For example, y is a function x is written like this: y = f (x), where y is a function of x, and x is the function argument.

• 3.    The equilibrium approach means that microeconomics studies the state of the relative stability of the system, that is, when there are no internal tendencies to change this state. If, with a slight change in the external conditions, the economic situation changes significantly, such an equilibrium is called unstable. If, with external changes in the system itself, there are forces that renew the previous situation in the system, then such an equilibrium is called stable.

• 4.    The method of verifiability (verifiability) of the theory, according to which the theory should receive partial or indirect confirmation in practice. In the case when the theory does not agree with the facts, the theory either improves or rejects and creates a new one. Positivists believe that it is necessary to explain what is happening in the economy and how, but one should not give subjective assessments.

The adherents of the normative approach widely use the modeling of economic phenomena and processes, that is, the study of objects of knowledge is carried out not directly, but indirectly, through models. Ideal modeling prevails in microeconomics, which is divided into symbolic and intuitive. Sign modeling involves the use of formulas and graphs. Graphic models have considerable explanatory power. There are two types of graphs: empirical dependencies and theoretical dependencies. The former are an empirical reflection of the relationship between variables. The latter appear in the form of a theoretical mapping of the relationship between economic variables and are used to explain the functioning processes of surreal economic systems or their constituent elements. On the graphs of empirical dependencies, each point demonstrates the values of variables together observational observed. Graphs of theoretical dependencies are often shown as solid lines, rather than as a set of individual points. In microeconomics, two types of models are used - optimization and equilibrium. Optimization models are used when studying the behavior of individual economic agents. In these models, the main working categories are such concepts as marginal utility, marginal product, marginal cost, marginal revenue, etc. Equilibrium models are used in studying the relationship between economic agents. These models are a special case of a more general class of models of interaction of economic agents. Through the equilibrium models are studied and the equilibrium and non-equilibrium position of the economic system. In the microeconomic theory, market equilibrium models are of particular importance because economic agents can efficiently carry out their economic activities only if they have reliable information about all prices and for the resources they consume and for the benefits offered by them.

Since every single economic agent cannot have such information, the optimal way to study pricing factors can be an assumption of the equilibrium position and minor changes in one specific price. Of great importance in economic modeling is computer modeling, successfully used in solving theoretical and practical problems. Microeconomic theory underlies the development of microeconomic policy. The latter, in turn, is determined by the state, which sets specific goals for individual markets or industries and applies certain instruments for regulating markets and industries to achieve these goals. In microeconomics, as in macroeconomics, the same toolkit is used, but each of the sciences analyzes economic phenomena and processes from a different angle. Macroeconomics studies the economy of the country as a whole, microeconomics studies the composition and distribution of the social product.

LITIRATURE:

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  Methodological Research.-Krasnodar, Soviet Kuban.-2001

• 2. Iokhin  V.Ya.  Economic theory: Introduction to the  market and

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• 3. Klyuev  V.K.  Library  microeconomics. Methodology,  management,

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"Экономика и социум" №4(59) 2019