Microeconomics involves observing the behavior of an economy to understand how to distribute resources. This study is very important in business world because it influences supply and demand of goods and services, which are used to set the cost of products and services. Both buyers and sellers use the two elements to make financial decisions. This paper will focus on how microeconomics concepts are applied in life.
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Supply and demand are perceived to be the most influential factors concerning the cost of goods and services. This means that if the demand of a given commodity is high and the supply of that commodity is not adequate to meet the market needs, then the cost of that item will rise. This can be worse if there is only one sole supplier because he/she will be overwhelmed by the increase in demand.
This may cause the supplier to bring goods of low quality in the market and the sellers will trade them off at the usual prices. This happens because the manufacturer produces the products in a hurry. A smart shopper should not be contended with what he/she finds in one shop, but should instead look for other places where the same commodity is being sold at subsidized price.
Competition among sellers favors buyers because each of them tries to entice the customer by slashing their prices without reducing the quality of the merchandise on sale.
In addition, one needs to be cautious when making a purchase and the shortage of supply should not be the issue. There are people who are known to judge the quality of an item by its price tag. This is wrong because sellers are out to make profits and to them the real worth of an item is not an issue.
It is therefore important to evaluate an item because it helps decide whether it is worth the cost. Many are times when the price of an item misguides someone, only to regret later when it turns out that the item is not as durable as we were made to believe. Besides, one cannot distinguish a pair of shoes that was bought at $20 from the one that cost the owner $50.This is because they serve the same purpose.
The above scenario implies that when the price of items that we require the most goes up we should identify alternative items to serve the same purpose. This is because there is no point of buying an expensive item when there are other cheap items that can quench our needs. However, it depends on the financial status of an individual. Another option would be to wait until the supply goes back to normal. This is necessary especially when the items in question are not needed that much, meaning that the needs can wait.
Likewise, planning is quite beneficial to both the sellers and buyers. To the buyer planning ahead helps to prevent purchasing items at high prices. For instance, when schools close a parent should purchase the items that his/her child requires in the following season because at that time the demand for books and other learning materials would be low.
However, if the parent opts to wait until when the schools are reopening, he/she would pay more for an item that would have cost him/her less money if he/she had made the purchase earlier.
Alternatively, a smart seller observes the market behavior and understands when the low and high season commences and prepares adequately. By being knowledgeable about changing market trends a seller obtains enough stock and lies in wait for the demand to shoot up and make his/her score. In microeconomics, it is the smartest people who continue to thrive even when conditions continue to deteriorate.
Microeconomics can also be used when one intends to establish a business by evaluating supply and demand. By observing the environment, it is easy to spot an opportunity that is yet to be exploited. This involves identifying the needs of the people around you to determine what items you can sell to them. Going blindly will cause a noble idea to fail.
Some people want to venture into businesses that have been tried by others simply because they know one or two people who get huge returns from selling particular merchandise. Just because John got his wealth by selling bananas by the roadside does not mean that another person will equally succeed in the same venture.
It is therefore important to study the market first to identify possible customers. The same goes for people who wish to borrow money from financial institutions. This is because it is not difficult to get the money, but the interests that will accumulate. In fact, most people fear to borrow money because of these interests.
When one wishes to apply for a loan, he/she should first analyze how the money is going to be repaid. This entails carrying out research on how interests have been changing in the past. This is because the changes in interests could favor borrowers and have a negative impact on lenders. This implies that if the interest rates came down while you have already obtained money from the lending party then you will pay less money than the stated amount.
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In such a case, the borrower should take advantage of the situation to repay the loan while the rates are still low. If the borrower hesitates, the rates could increase and thus, the amount to be repaid will increase. Alternatively, the borrower can apply for a loan that has a permanent interest rate because that way he/she would be cautioned from the changes in interests.
However, if one needs to borrow money when the interest rates are still high it would be advisable not to apply for a loan in such a situation. Changes in interest rates also influence investments in bonds and shares.
An investor can purchase bonds when it is speculated that the interest rates will go up in the future. This is because the returns he/she will get from those bonds will be much greater than when the interest rates remained low. In the stock market, it is possible to make profits when the interests are low .In such a case, an investor purchases stocks when the prices are still low and sells them when the prices appreciate probably due to increase in interest rates.
Moreover, microeconomics can be employed in business management to dictate when an individual should enter or exit a venture. This is because if a business is not bringing any profits there is no point of operating it because it will continue to draw money from the investor instead of generating income. This is very common during recession periods.
An individual who is employed should use the knowledge he/she has in microeconomics to negotiate for salary increase. The decline in the value of a local currency provides an opportunity for an employee to demand for wage increment because the salary that was once enough to meet his/her needs is no longer useful. A concerned employer would understand this logic much better. If the employer refuses to listen to such arguments then the employee should look for another job that pays more while still working for the current employer.
If the situation persists, the employee should identify ways of surviving the inflation. Some of the approaches include eliminating some unnecessary expenses such as luxuries.
Alternatively, when inflation reduces the people who are not employed should increase the frequency of searching for employment because job opportunities increases with reduction in inflation. When inflation increases, the learners who graduate from learning institutions should look for ways of employing themselves because the job market will decline and employers will be firing instead of hiring employees.
For individuals who participate in international trade, learning about changes in other economies would help them up their game. This is economic bubbles that are experienced in one country are extended to other countries that interact with it. For instance, if the value of the US dollar rose against the value of Japanese yen then the people who import goods from US would incur more costs.
On the other hand, exports from Japan would be cheap to the Americans. In the above stated case, it would be logical for a Japanese to invest in the US because he/she will earn returns in US dollars and he/she will get more profit when the money is converted to Japanese yen. On the contrary, it would be unwise for Americans to invest directly in Japan because their investments will not yield any profit owing to the low value of the yen against the dollar.
In conclusion, individuals should dare to apply the principles of microeconomics because it is only then that they can make wise decisions. Microeconomics is not just learned for passing exams, but because we need its insight in our day-to-day lives. This implies that consumers, sellers, and the public should make decisions that are based on what they know.
If we all applied this knowledge appropriately, no one would be penalized for failing to pay his/her debts in good time. Furthermore, knowledge in microeconomics increases our bargaining power as seen in the case of employees and their quest for getting better pay.