What are these major questions in microeconomics? Give details and include examples with your answer.

Topics: Personal computer, Supply and demand, Computer Pages: 4 (1061 words) Published: July 23, 2006
Microeconomics is the study of the choices that individuals and businesses make and the way these choices respond to incentives, interact, and are influenced by government. Microeconomics involves the analysis of how consumers make decisions about what to consume, how firms decide what and how much to produce, and how the interactions of consumers and firms determine how much of a good will be sold, and at what price. Many interesting questions can be approached by applying the methodology developed. For example, how will a cut in price of V3 Motorola hand - phone affect the quantities of these items that people buying?

It is the standard approach of microeconomics, although not without controversy, to assume that consumers seek to maximize satisfaction and firms seek to maximize profits. The mechanism through which consumers and firms interact with each other is the market. Microeconomics analyzes the determination of market demand and supply, various forms of market structures, and how they affect economic efficiency.

As what you've read above, the economic choices that individuals, businesses, and the governments make and the interactions of those choices answer the three major questions that microeconomics focus.

To give an idea the type of questions that microeconomics deals with; let's start with a simple example. Consider some of the important decisions a firm, says Dell Computer, needs to make.

First, Dell needs to decide what kind of computers to produce: the processor, hard disk capacity, RAM, modem, CD-ROM, installed software, monitor, etc.

Second, Dell needs to decide how to produce the computers: in one location or in different locations; equipment and technologies to use; make or purchase choices, etc.

What may determine Dell's production decision: consumer demand; technological feasibility; costs of production; products of other computer producers? and so on

Third, Dell needs to decide how to price its computers. This again...
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