Microeconomics personal perspective paper

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Microeconomics: Personal Perspective

            Prior to the course, I understood the term economics to be the study of how economies work regarding investment, trade (production and consumption of goods and services) and other economic phenomena such as product prices, the balance of payment and employment levels. However, economics is a very complex discipline with theories, concept, and principles that explain various economic events. This paper outlines my personal perspective of economics, what I have learned through the course and how I plan to continue to increase my knowledge of economics so that I gain a better understanding of various policy issues and arguments.

            One thing I learned about economics which I was not aware of before the class is the use of assumptions in building economic models and theories. In developing models to explain economic concepts, economist use assumptions to simplify complex processes so that they can be understood easily (Morris, 2005). For example, in developing the indifference model that shows consumer behavior regarding preference for a different combination of goods or services, certain assumptions are made to make the indifference curve easy to understand. The model indicates a combination of commodities X and Y that offers a consumer, equal utility. It represents pairs of the number of commodities in which a consumer is indifferent. The graphical representation of this model is illustrated in figure 1 below.

Figure 1. Indifferent Curve for Commodity X and Y

From the diagram above, point A and B shows the combination of good Y and X between which the customer is indifferent. The two combinations at point A and B yields the same utility for the consumer. However, the combination of the commodities at point C offers a higher level of satisfaction than combinations at points A and B since it is on a higher indifference curve and it contains more of both commodity Y and X.

In this model, some economic assumptions are used to simplify the principle. They Include:

1. There are two commodities, X and Y.
2. Consumers act rationally in the market to maximize their utility
3. Consumers have adequate information about the commodity prices in the market.
4. Consumers purchasing habits, taste and the level of income is held constants
5. Consumers have both indifference and preference, and they are transitive (Varian, 2014). For instance, if commodity X is preferable to Y, and Y to Z, then X is also superior to Z. Correspondingly, if the consumers are indifferent between combination 1 and 2, and 2 and 3, then they are also indifferent between combination 1 and 3.

            This course has definitely changed my perception of what I thought about economics. Before this course, I did not view economics to matter so much to those who are not involved in the policy-making process. Now, I believe economics matters to everyone since it can change how economies operate through better policies. The economy affects everybody, including regular individuals who do not participate in the policy-making; therefore, it is vital that everyone has adequate economics knowledge to understand better, the policies that affect them. For example, if a government decides to increase taxes on certain products, this policy will not only increase government revenue but will also reduce both consumer and producer surplus thus increasing the prices of such products (Amacher & Ulbrich, 2013). Economics enables individuals to understand such events and how each policy is likely to affect them both in the short and long-run.

            The Course has also contributed to my increased economic knowledge by exposing me to new economic concepts such as consumer and producer surplus. Consumer surplus refers to the difference between the current market price and the highest price a consumer is willing and able to pay for a commodity. Producer surplus, on the other hand, is the difference between the lowest price a producer is willing and able to accept and the actual market price (Baumol & Blinder, 2015).  These two concepts are presented as shown in figure 2 below.  

            Figure 2: Consumer and Producer Surplus

From the above diagram, Area A represents the consumer Surplus, while Area B is the producers Surplus. Both consumer and producer surplus are affected by the market inefficiencies such as price ceiling and government taxations leading to a deadweight loss.

            Lastly, I plan to continue to increase my knowledge of economics by taking another economic course. This program has already changed how I view economics and expose me to new concepts and theories, so I believe taking another course will allow me to expand my economic knowledge even further. Also, I plan to continue reading different materials on economics, such as books, articles, magazines, and newspapers, to improve my application of the theories learned in class. Most occurrences in different economies are usually presented in the media; thus, it is a useful source of knowledge capable of improving my understanding of economic policy issues and arguments.    

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