TYPES OF MICRO ECONOMICS

3. TYPES OF MICRO ECONOMICS

The analysis of microeconomics is always affected by time period. But there are still some economists who do not believe the time value in microeconomics analysis. Based upon the equilibrium of microeconomics in the different situation and relationship between time and different economic models, the microeconomics is divided into three different types, namely Microsatics, Comparative Micro statics and Micro Dynamics.

a. Micro Statics:

Demand and supply are two principal variables that determine the equilibrium level for market. The quantity demanded of a good at a time is generally considered to be related to the price of that particular time. Same way supply is also related to price at particular static time. Thus microeconomics tries to find out the equality of demand and supply at a particular point of time or static time. This static analysis is the study of static relationship between two variable called demand and supply, which is known by micro statics. In other words, if the functional relationship is established between two principles variable at a same period of time, such analysis is known by micro static. This situation is also known by equilibrium situation of variables. This equilibrium determines the equilibrium price and quantity. According to Schumpter, “By static analysis, we mean, method of dealing with economic phenomena that tries to established relations between elements of the economic systems-prices and quantities of commodities all of which have the same time subscript, that is to say, refer to the same point of time.” He further said, “Static analysis tries to establish relation between elements of the economic system which refer to the same point of time.”

The concept of micro static is given below with the help of diagram.

 

In the diagram given above, DD shows demand curve and SS shows supply curve. Both curves intersect at point ‘E’ that gives the equilibrium price- P and quantity- Q at particular time period. This is static analysis.

b. Comparative microstatics:

Micro static explains about the equilibrium point that is obtained by two co- operant factors that is demand and supply, under the static or given period of time. Thus equilibrium is obtained when demand equals supply under the condition of ‘other things remaining same’ or ‘no change’. When variables change, the initial equilibrium level will be disturbed. This brings the process of disequilibria and it continues till new equilibrium is obtained. In this background it is essential to analyze the comparison between these two equilibrium levels. The comparison between these two different equilibriums is studied under comparative microstatics. It compares one equilibrium with other equilibrium but does not identify the process of disequilibria that occurs. According to Prof. Schneder; “The comparative analysis of two equilibrium positions may be defined as comparative static analysis. Since, it studies the alternation in the equilibrium position corresponding to an alternation in a single datum.”

For example, suppose that income of consumer changes that affects to demand of consumer and regarding supply, initial equilibrium distributes and new equilibrium is obtained. Same way due to change in the technology, production function, then cost and hence supply change and this affects the initial equilibrium. Thus in both cases- either demand changes or supply changes, two equilibrium appear- initial and later. Comparative micro statics studies those two equilibriums.

The diagram given explains the comparative micro statics equilibrium. In the diagram, demand curve DD and supply curve SS gives the equilibrium point ‘E’ at price- P and quantity- Q. due to changes in the demand, it shifts to D1D1 and new equilibrium point ‘E1’ is obtained with the same supply curve SS. This new equilibrium gives new price- P1 and quantity- Q1. Comparative micro statics studies the two equilibrium points ‘E’ & ‘E1’.

c. Micro dynamics

Study of microstatics shows the state of equilibrium through demand supply analysis under the assumption of constant time where no changes in variables take place. Same way study of comparative micro statics shows the comparison between two equilibriums due to partial change in factors and time period. But the world and time are neither static nor they partially change. The real world is dynamic. The change in time and other factors are dynamic and they lead to change in demand and supply hence change in equilibrium. Thus micro dynamics refer to a position by which the system passes from one position of equilibrium to other. It is very essential to know change and process of change in equilibrium. In this analysis with the change in pace of time price of commodity also changes and that brings the change in demand and supply. Those changes bring the true picture of real world economy at different prices at different time. According to J.A. Schumpeter, “we call a relation dynamic if it connects economies quantities that differ to different points of time.” W.T. Bauomol said, “Economic dynamics to the study of economic phenomena in relation to preceding and succeeding events.” The other most important aspect of micro dynamic is that it deals with disequilibria condition also. The analysis chases process of change time by time. It can explain state of being disequilibria and how the disequilibria’s move towards equilibrium.