Microeconomics Analysis
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The world of business is one that is ordinarily susceptible to many changes that sometimes occur gradually over a period or instantly. Gradual in the sense that sometimes the government may decide to increase or decrease on certain items and as such traders and the business community are given a certain period to adjust these changes so as not to cause panic in the market or rather any form of chaos among the consumers. An instant change, on the other hand, maybe as a result of inadequacy or rather adequacy of a certain commodity in the market. For instance, for many years, people have never seen the importance of purchasing a hand sanitizer; for many washing of hands with clean water only is enough. Due to this, the demand for hand sanitizer has always been very minimal, but in recent days, its demand has risen exponentially due to Covid-19. With the increased demand for sanitizers, sellers have increased their prices, and now companies are work hard to increase supply so as to offset at least the demand that is rising as the spread of the disease continues. All these are microeconomics, which usually tends to study the implications of individuals based on the decisions that they make that may have an impact on the distribution of resources. Several concepts attached microeconomics, and they do dictate how business is run.
There is an oligopoly concept which involves a market structure where few firms or companies produce a certain product. Since every business is usually out to make sure that it gets the maximum profit available, they typically make it hard for other companies to enter the market (Economics online, 2020). For instance, assume Company A, B, and C produces 95% of a particular country’s orange. If Company A decides to raise the price of its oranges, the customers may choose to either buy from Company B or C instead. But if they also decide to follow on Company A’s footpath and raise their prices, then three companies will have controlled the entire orange market through their power to set prices.
Another concept is whereby the government may decide to intervene in a particular situation so as to improve market outcomes. Today, the whole world is ailing from the devastation that Covid-19 is continuing cause. Each and every country’s economy has been worse hit, and as such, governments have been forced to make drastic changes to at least ease the burden on the people. It is typically expected that in times of difficulty that when businessmen and women usually rush to make a fortune, but this time thing has been different (Saez, 2020). Governments have looked to seal loopholes that may force businesses to increase prices of commodities due to scarcity or increased demand. Tax reduction has been accorded unto various commodities that are deemed essential for our living, and besides that, the government has issued a stun warning to those sellers that might be looking to take advantage of the situation by increasing commodity prices
Rational people usually make decisions based on costs and benefits, and this is due to incentives. When the cost of a commodity goes up, people will buy less of that commodity, and the seller may even be forced to lay off some employees and vice versa. As such, supply and demand are a very direct result of incentives. Incentives also can help in reducing air pollution, at least from many smaller vehicles. This can be initiated through taxes whereby fuel tax is increased, and as such, this will force people to shift to public transport or even buy electric cars; also, the prices go high (Mankiw, 2020). As such, the change in prices of commodities in the market will always make people react based on their liking or instead of their budget limit, response to incentive.
People facing trade-offs is another concept of microeconomics; people usually assess the risk and the return on investment before deciding to put their money into something. The society has limited resources, and thus, the goods and services that one wishes to have can never be attained unless he or she give up somethings or makes a trade-off. For governments, the policies that they usually make are usually based on either equality or efficiency (Mankiw, 2020). For instance, a government may impose a price ceiling on some necessities such as bread and milk so as to bring equality even though this will lead to inefficiency since the suppliers will produce less bread since they cannot get a higher price. As such, to be able to produce the right number of eggs, the rationing of resources is evitable. As such, people facing trade-off is an important aspect of business that is always there.
Monopolization of markets is another concept whereby a company dominates a market through some dubious and unscrupulous means. Such like companies usually make it harder for other companies to enter the market. The Standard Oil Company was one company that was involved in the monopolization of oil business in the US in the nineteenth and early twentieth centuries. Standard oil would always threaten companies wishing to enter the oil business, or sometimes they would even offer to buy these companies so as to maintain the status quo in the market of being able to dictate the market price of oil.
References
Economics online. (2020). Oligopoly. Economics online.
Mankiw, G. (2020). Principles of Macroeconomics. Mason: South-Western.
Saez, E. (2020). This Crisis Calls for Massive Government Intervention: Here’s How to do it—the Guardian.