In anticipation of the so-called Keynesian rebellion of the late 1930s and 1940s, the two most important parts of economic theory were characteristically labeled “monetary theory” and “price theory.” At present, the equivalent dichotomy is stuck among “macroeconomics” and “microeconomics.” The inspiring force for the change came as of the macro side with modern macroeconomics being far additional overt than old-fashioned monetary theory about variations in income and employment (in addition to the price level). In contrast, no rebellion separates today’s microeconomics from old-fashioned cost theory; one evolved from the other as expected and without important controversy.
The power of microeconomics comes from the ease of its underlying structure and its close stroke with the real world. In a nutshell, microeconomics has to do among supply and demand and with the means they interact in various markets. Microeconomic analysis moves without problems and painlessly from one topic to another and lies at the center of most of the recognized subfields of economics. Labor economics, for instance, is built largely on the analysis of the supply and demand for labor of many types. The field of industrial organization handles the different mechanisms (monopoly, cartels and different types of aggressive behavior) by which goods and services are sold. International economics worries about the demand and supply of individual traded commodities, in addition to of a country’s exports and imports taken as an entire and the consequent demand for and supply of foreign exchange. Agricultural economics deals with the demand and supply of agricultural products of farmland, farm labor, and the other factors of manufacture involved in agriculture.
Public finance (see public choice) seems at how the government enters the prospect. Conventionally, its focus was on taxes, which repeatedly introduce “wedges” (differences among the price the buyer pays and the price the seller receives) and cause incompetence. More recently, public finance has reached into the expenditure side in addition, attempting to examine (and sometimes actually to measure) the costs and benefits of a variety of government outlays and programs.
Functional welfare economics is the fruition of microeconomics. It handles the costs and benefits of presently about anything—government projects, taxes on commodities, taxes on factors of production (payroll taxes, corporation income taxes), agricultural programs (similar to price supports and acreage controls), tariffs on imports, various forms of industrial organization (like monopoly and oligopoly), foreign exchange controls and various aspects of labor market behavior (similar to minimum wages, the monopoly power of labor unions and so on).
It is hard to envisage a basic course in microeconomics failing to comprise numerous cases and illustrations drawn from all of the fields listed above. This is since microeconomics is so basic. It represents the trunk of the tree from which all the listed subfields have branched.
At the root of the whole thing is supply and demand. It is not at all fantastic to think of these as essentially human characteristics. If human beings are not going to be completely self-sufficient, they will end up producing convinced things that they trade in order to fulfill their demands for other things. The specialty of production and the institutions of trade, commerce and markets long antedated the science of economics. Certainly, one can fairly say that from the very outset the science of economics involved the study of the market forms that arose quite logically (and without any help from economists) out of human behavior. People specialize in what they think they can do most excellent or more existentially, in what heredity, environment, fate and their own volition have brought them to do. They trade their services or the products of their occupation for those produced by others. Markets evolve to organize this sort of trading, and money evolves to act as a generalized unit of account and to make barter redundant.
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