Microeconomics is an economic theory that studies the economic behavior of a single economic unit in society and how the individual values of the corresponding economic variables are determined. Also known as market economics or price theory. The central theory of microeconomics is price theory.
microeconomics-analyzing the economic behavior of individual economic units, on this basis, studying the operation of market mechanism in modern western economic society and its role in the allocation of economic resources, and putting forward microeconomic policies to correct market failure.
Microeconomics is concerned with the exchange process between individuals and organizations in society. The basic problem it studies is the decision of resource allocation, and its basic theory is the theory of determining relative prices through supply and demand. Therefore, the main scope of microeconomics includes consumer choice, supply and income distribution by manufacturers.
"micro" is a free translation of the Greek word "μ ι κ ο", which originally means "small". Microeconomics is an economic theory that studies the economic behavior of a single economic unit in society and how to determine the individual values of the corresponding economic variables. Also known as market economics or price theory. The central theory of microeconomics is price theory. A central idea of microeconomics is that free exchange often makes the best use of resources. In this case, resource allocation is considered Pareto efficient. I. new development of microeconomic theory
(I) new consumption theory
The traditional western microeconomics constructs consumer behavior on the premise of maximizing consumer utility. The development of consumption theory research is due to the reflection on this premise.
1. Display preference theory.
the theory of display preference was first put forward by Samuelson, and then gradually became a system with the supplement of Houthakker and Richter. Its emergence stems from the undetectable utility of the traditional demand theory. In the traditional micro-demand theory, the consumer's choice behavior to maximize utility is easy to analyze only when the consumer utility function is known and has good properties. But this is not the case in real life, because the utility or preference can not be directly observed, but only the consumer's choice behavior can be directly observed. If we can find some relationship between choice behavior and preference, and further, if consumers' "choice" can show "preference", then demand theory and preference theory can be based on observable consumer behavior, which makes it possible to test the consistency between consumer behavior and maximization axiom. This is the basic idea of display preference theory.
2. Selection under risk conditions.
In the market with a large number of risks, how to effectively choose the portfolio of assets to avoid risks becomes very important. Therefore, the research on insurance market, securities market, futures contract and other issues has become a very active branch of microeconomic theory. Especially since 196s and 197s, with the development of cognitive psychology and other branches of psychology, people began to test the rational hypothesis and expected utility theory of classical economics. The results show that the rational axiom hypothesis holds under certain conditions, while people's behaviors often violate the public rational hypothesis under vague or uncertain conditions. Therefore, in making decisions under uncertain conditions, we must examine people's complex mentality. In this case, wait-and-see theory, regret theory and fuzzy model have emerged. When it comes to portfolio decision-making in the market, there are risk asset theory (derivative securities), agency theory, portfolio selection theory, capital asset pricing model and arbitrage pricing theory. Corresponding to this theory is the intertemporal choice theory that explains consumers' different choices of consumption and savings under different conditions. Dynamic intertemporal selection theory has been widely used in modern economics.
3. Consumption is also the theory of family production.
Becker believes that the family is similar to a small factory, and it combines "capital goods, raw materials and labor … to produce some other useful goods". According to this broader point of view, consumers in neoclassical microeconomics are now both family consumers and family producers, and they have dual roles. It is believed that the production and consumption of goods (in Becker's model, children are sometimes regarded as consumer goods) takes time. Time is an opportunity cost, which must be calculated together with the market price of any article or the behavior of making economic decisions. Just as it takes human resources, capital and time to bring up children, the production and consumption of any final goods or services can be regarded as a combination of various inputs needed to obtain an output. For example, a person's final products, such as "healthy body", obtained in his family production (in the new microeconomic theory represented by Becker, consumption is regarded as family production) need a combination of many "market goods" (those directly purchased by consumers in the market) and time investment. Sports equipment, all kinds of healthy foods, medical services, and the time spent on exercise and the time needed to consume these items are all inputs for the production of this final product. Individuals or families turn these inputs into outputs (including children's growth, comfortable family life, healthy body, spiritual pleasure, etc.), that is, the family's production or consumption process, which embodies a production function.
just as the opportunity cost of the application of production factors should be considered in the optimization of production in general production enterprises, the opportunity cost of the application of various factors should also be considered in the optimization of household production. For example, it takes time to watch a play, read a book, or eat a delicious meal (all of which can be regarded as input factors in family production), so the full price of these behaviors must include the opportunity cost of the time spent on these behaviors. This opportunity cost can be measured according to the individual's market wage. For example, suppose someone can earn $1 for an hour's work, and he will either spend an hour eating in a restaurant or 15 minutes eating fast food. Suppose that the cost of these two dining methods is 6 dollars. Although the two meals need the same monetary cost, the full price of their consumption is obviously different. The full price of fast food consumption is $8.5 ($6 plus giving up $2.5), while the full price of eating in a restaurant is $16 ($6 plus giving up $1). The decisive factor of an individual's final choice will be the amount of utility (that is, the value of products produced by the family) brought by every dollar spent (full cost) in each meal. Other values of family production, such as having children, doing all kinds of housework and maintaining activities, can also be expressed by the concept of opportunity cost. Similarly, when the cost of time and the cost of market goods are treated equally, new ideas are injected into the traditional choice between work and leisure, and now it has become a choice between work, leisure and family production. Moreover, according to the concepts of quality and quantity, the new ideas of family consumption types can be established.
(2) The new firm theory (modern enterprise theory)
The neoclassical firm theory studies an atomic firm, that is, it regards the firm as an economic individual with a tendency to maximize profits, in other words, it regards the firm as a "black box" and the smallest analysis unit, and all problems are abstracted in the production function. However, reality is far from theory, and the formation of modern enterprise theory is the result of reflection on this assumption.
1. the nature of the enterprise. The essence of this problem is to analyze the reasons for the existence of enterprises. Coase was the first to put forward and explain it. From the perspective of transaction cost analysis, Coase proposed that the existence of enterprises is to reduce the cost of market transactions, that is, the internalization of market costs. In addition to Coase, Williamson,1975), Klein,1978), Grossman and Hart (Grossman,Hart,1986), Tirole and others explained the essence of enterprises from the perspectives of asset specificity, incomplete contract and vertical integration.
2. maximization model and principal-agent problem. The principal-agent problem stems from the reflection and analysis of the maximization behavior of enterprise managers. In an enterprise, the separation of ownership and management is a problem that must be studied. Under normal circumstances, enterprise managers have exclusive decision-making power according to their specific information and power advantages, and their behavior has a great impact on enterprises. Therefore, in modern enterprises, there are differences in interests and goals between investors or clients and managers or agents. The principal-agent theory is developed to solve the deviation of managers from the goal of maximizing investors' profits. The significance of this theory lies in making enterprises no longer be the smallest unit of economic analysis.
3. Internal organizational efficiency and non-maximized firm theory. How to stimulate employees' enthusiasm and creativity, and effectively organize various resources to make the enterprise run effectively is the core problem of enterprise form. The team theory of Archin and HaroldDemsetz (1972) successfully explained this problem. From the management point of view, the neoclassical "rational economic man" is the foothold of its management, that is, the "interest maximization incentive" of management. But in reality, this management idea is not always tried. In view of this situation, Simon (H·A·Simon) assumes limited rationality and pursues satisfactory utility, and H. Leibenstein puts forward "X-inefficiency theory", thus forming a theory of non-maximized firm behavior. Its significance lies in analyzing and studying the problem of resource allocation and utilization efficiency from the perspective of "micro-micro", which has become an important supplement to the "maximization theory".
(3) Game theory rewrites microeconomics
There are two important assumptions in the market analysis of neoclassical economics: 1. Personal decision-making is the best choice under the given price parameters and income, which does not affect others or rely on others; 2. The market information is sufficient and there is no cost. These two premises make microeconomic analysis always in the wonderful realm of perfect general equilibrium deterministic analysis. However, this is not the case in real life. As a whole, the economy not only affects each other, but also has a limited ability to obtain information and information has a cost. It is in this case that game theory, information economics and uncertainty analysis came into being. Game Theory and Economic Behavior, published by von Neuman and von Neuman (Morgan Stern) in 1944, marked the formal establishment of "economic game theory". By 1994, Nash, Zelten and Harsanyi, three masters of "game theory", had won the Nobel Prize in Economics. During this period, the game theory had been greatly enriched and developed for half a century. The theories of "Zero-sum Game and Non-zero-sum Game", "Prisoner's Dilemma and Nash Equilibrium", "Subgame Refined Nash Equilibrium" and "Bayesian-Nash Equilibrium and Refined Bayesian-Nash Equilibrium" make the status of game theory in modern economic analysis rise day by day. In a sense, the extensive application of game theory has rewritten microeconomics.
Game theory reshapes the exclusive theory of microeconomics. Ignoring externalities is a fatal defect of classical economy, so the study of externalities greatly promotes the development of microeconomics. From Cournot, Bertrand to Chamberlain, economists have gradually realized that most market competition in reality needs to be explained by oligopoly theory. Although oligarchic competition is common in reality, before the introduction of game theory, what economists can do is to review Cournot's research results a century and a half ago. Only in the traditional industrial organization theory represented by Bain, the oligopoly market is regarded as the focus, and an empirical study is made in the framework of "structure-behavior-performance". But when economists mastered Nash equilibrium and more knowledge of game theory, Cournot research was further promoted. They not only proved that Cournot and Bertrand equilibria are Nash equilibria, but also developed a variety of analysis techniques based on these two models, such as sunk cost, incomplete information model, individual rationality and collective rationality, anonymous theorem, etc., which made the market analysis of modern economics jump to a new realm.
(4) Information economics has become the mainstream of microeconomic analysis
In economic society, everyone makes decisions according to the information he has. But asymmetric information environment is the norm. The so-called asymmetric information environment means that some people have information that others don't. Information economics studies the optimal decision-making of behavior individuals under asymmetric information, and mainly studies two aspects: one is economic analysis under incomplete information, the core of which is "information cost" and optimal information search; The second is economic analysis under asymmetric information. The difficulty in information economics lies in the uncertainty of the object in the principal-agent relationship, that is, the principal can't know exactly what kind of people he is dealing with when dealing with various agents, and the same is true for agents. In the late 196s, Hasani, a game theory scholar, put forward a game technology to deal with incomplete information, and extended the concept of Nash equilibrium in the game of complete information to the game of incomplete information, and defined Bayesian-Nash equilibrium. On this basis, incomplete information games (especially asymmetric information games) have developed by leaps and bounds, and information economics has also developed rapidly. The analytical method of asymmetric information game has completely changed the whole picture of microeconomics. In recent years, the problems of moral hazard and adverse selection dealt with in the design and research of economic mechanism are all changes brought about by this analysis method. It can be said that careful micro-analysis has penetrated into the complex economic system in which we live-from the effectiveness of the market to the supply of public products, from various related issues of the modern enterprise system to the role of the government in the economy and so on. Information economics has become the mainstream of economic analysis.