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The Understanding Of Importance Of Microeconomics Economics Essay


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We use the knowledge learned in microeconomics to introduce you to the European Union from 2010 to 2020 the agricultural sector of conversion to non-agricultural sectors. And we used charts and examples to confirm our theory. Microeconomics is closely related with our real life , through our report , you can very clearly understand the price , quantity , production efficiency of these factors is how to affect the purchasing power of consumers and the EU government is how to adjust the merchants tax. We have applied to our report . In addition, we introduced the meaning of these curves and change specific chart. We talk about more examples for government how to solve tax and subsidy into market. Through our report, you can clearly know how tax and subsidy effect consumer and productions. Hope you can learn more knowledge in our report.

2. Introduction

2.1 Background

We want to find out how EU government can change agricultural sector to non-agricultural sector. If they changed, these change how to effect customer and businessman..

2.2 Problem

The problem is why EU government can change to non-agricultural successful.

2.3 Purpose

We hope we can show reader how can understand these microeconomics' knowledge. Make sure you can know whole entire event about EU government change agricultural to non-agricultural sector.

3. Method

We used Cobb-Douglas production function, Private good, Public good and Elasticity about price, income and cross-price.

4. Application and Theory

4.1 Executive summery

First we are talking about private and public consumption and especially what goods and services to decrease and increase.

Public good is a commodity or service whose consumption by one person does not preclude others from also consuming it. Private goods have the properties of rivalry and exclusion and they belongs to one individual.

Rivalry means that only one person can consume the good. Public goods lack rivalry, but only some of public goods lack exclusion. The social marginal benefit of a public good is the sum of the marginal benefit to each person who consumes the good. Because a public good lacks rivalry, many people can get pleasure from the same unit of output. As a consequence, the social demand curves or willingness-to-pay curve for a public good is the vertical sum of the demand curve of each individual.

Swedish government has by reducing agriculture spending, use to support for non-agricultural projects, for example the government by reducing the scope of the orchard, and use the land to Building the juice processing plants, thereby reducing the to growers land use to support non-agricultural projects, through processing, However, processed juices income is higher than the direct sale of fruit. So as to reduce the phenomenon of farmers from planting the fruit left to eat. Also driven by the economic growth.

What is the key to affect price of the goods? Yes, taxes and subsidies, the total growth of taxes and subsidies can affect the price change, next, we will talk about is how to increase and decrease volumes, of consumption when using taxes and subsidies.

All these subsidy cases are as before. In these cases, the money for producers to produce goods is limited. Within the subsidies from the government, so producers can produce more goods than before. If one of the goods gets the subsidy but another not, the producer can produce more of this stuff to earn more money. If both of these products get subsidies as a same percent from the government, the producers can put more products into market, and they can get much more money from them. .com

In accordance with the foregoing example. Increase the income of the non-agricultural projects to reduce agricultural spending, the government should reduce the taxation of non-agricultural projects, and to increase the taxation of agricultural projects. Such as the example, to increase the the fruit sale tax, to limit the number of farmers directly sell fruit.Sell juice while reducing taxes and reducing the processing fees. And juice factory tax. To guide farmers to sell more of the juice.

Increase or reduce taxes and subsidies benefits? The impact of the import and export of goods, and increased through the reduction of taxes and subsidies, to understand the situation of import and export. Next, we will talk about is The domestic consumption and the exports.

"Consumption is a common concept in economics and many other social sciences, and gives rise to derived concepts such as consumer debt." And the domestic consumption takes place in one country.

If governments want to improve the goods of domestic consumption, first method is to reduce taxes for producers. For example, when Swedish government wants to increase the potatoes of domestic consumption, the government makes the tax for potatoes goes down, the price will also reduce. So consumers can buy more potatoes. The second method is that the government can decrease the good that they choose for import. Theses two methods are the most important ways that improve the goods of domestic consumption. If governments want to reduce the goods of domestic consumption, they can increase the tax of this good or increase this good for import.

"Any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade. Export goods or services are provided to foreign consumers by domestic producers."

As export, when government wants to improve the export, the first way is to decrease this good for domestic consumption. Or reducing the tax for this good is the second method. On the contrary, reducing goods of domestic consumption or increasing taxes are two ways to decrease the export.

Through exports, we can learn about the production of the product, when it comes to production, I must mention the economics the most widely used in the form of a production function Cobb-Douglas production function. It has an important role in the research and application of mathematical economics and econometrics. Next, we will talk about is the Production and Cobb-Douglas production function

"In geography, the Cobb-Douglas functional form of production functions is widely used to represent the relationship of output and two inputs."


It has three different conditions: decreasing, constant, or increasing returns to scale. When α+β >1, output rises more than in proportion to an equal percentage increase in all input. It is decreasing to scale. Under this condition, it is help to get more production by increasing the input. When α+β =1, all inputs are increasing by a certain percentage and output increasing by that same percentage. It is constant to scale. With this condition, the production will unchange. When α+β <1, output rises less than in proportion to an equal percentage increase in all inputs. It is decreasing to scale. Under this condition, it is impossible to get more production by increasing input.

Certain commodities increased sales to the large number of manufacturers to invest in this commodity, leading to inflation, causing confusion in the market, this time the government will intervene in the market macro-control, and finally we have to say is Government Intervention with Markets.

Theoretically, if let price alone,market will have a equilirium price, that make sure whole sellers would like make same price to sell. A equilibrium, supply totally equal to demand. some times government will intervene market, then change the price ceilings and price floors, put taxes and other measures into economy. If EU government change agricultural sector to non-agricultural sector, it could be effect many farmer and business man.

4.2 Price elasticity

The percentage change in the quantity demanded in response to given percentage change in the price." The price elasticity is the units-free measure of the responsiveness of the quantity demanded of a good to a change in its price, when all other influences on buyer's plans remain the same. And frequently price elasticity includes price elasticity of demand, price elasticity of supply, income elasticity of demand, elasticity of substitution between factors of production and elasticity of intertemporal substitution.

4.3 Supply elasticity

Supply elasticity is equal to percent change in quantity divided by percent change in price. If the value of number get higher, it make more changes in price and supply. Usually supply elasticity of product depends on the current supply of products. in lower supply, supply elasticiy will get high in supply rises. Because of supply increases, it becomes more difficult for producers to increase supply production.

4.4 Demand-income elasticity

"It is the percentage change in the quantity demanded in response to a given percentage change in income." "Income elasticity of demand measures the percentage change in demand caused by a percent change in income. A change in income causes the demand curve to shift reflecting the change in demand."

4.5 Cross-price elasticity

"The cross-price elasticity is the percentage change in the quantity demanded in response to given percentage change in the price of another good." "Cross price elasticity of demand measures the percentage change in demand for a particular good caused by a percent change in the price of another good. Goods can be complements, substitutes or unrelated. A change in the price of a related good causes the demand curve to shift reflecting a change in demand for the original good."

4.6 Competitive advantage

Competitive advantage is a trait. Competitiveness or strong have advantage, so this advantage is unique, it is impossible to have larger or more competitive. Generally speaking, as long as the competitor in some ways has some characteristics, it has a certain competitive advantage. Therefore, can say, competitive power is a kind of comprehensive ability and competition advantage is just something unique performance. It's unique or trait is different from other competitors of thing, such as enterprise's innovation ability than other strong, then its new product development is quickly quasi; And as a enterprise brand has a unique charm, can attract more customers, so it is easier to expand the market or expand sales, etc. So, the competitive advantage is a different from other competitors unique quality, the quality is difficult to observe and measure, but in the competition is to compare clearly shows, also can say will stand out.

Important 1:Distance GDP

export --import and GDP

A: Production factories.

B: Primary resources.

C: Area km2.

D: IRTS, CRTS, DRTS and home market.

E: Cost and know-how-special

Improtant 2: Fail competition No cost for logistics

Constant opportunity cost Labour only production factor

Pare barter economy

4.7 Terms of trade

Terms of trade tells you how many units you can buy from the other country for 1unit of you own's country export good.

The terms of trade are the indicators used to measure the profitability of a certain period of time a country's exports relative to imports and trade interests, reflect the country's foreign trade situation is generally expressed in terms of trade index, especially in bilateral trade. Commonly used in three different forms: the price of the terms of trade, income terms of trade, and elements of the terms of trade in the terms of trade, they measure a country's trade resulting from a different perspective. Price terms of trade is the most meaningful and most likely to be calculated based on available data.

5. Conclusion

5.1Private good

According to this figure, it is a D-S curve. The D (P) line means demand line. The S (P) line means supply line. When MRT (marginal rate of transformation) equals to MRS (marginal rate of substitution), the pinot (Eq) means the quantity of demand equals to the quantity of supply. When the price is P', we can quantity that are S' and D' from D-S curve. But the quantity of supply is less than the quantity of people demand. Then we name this situation Excess Demand (AB). In this case, the price needs to change, like this figure.

When the demand is far more than supply, the producers will increase the price of goods. The price will change with time passing. And the seed of the price's change is depending on other reasons, like the quantity of people that need this good. As the price changing, the demand and supply also will change. At last, the quantity of demand and supply will be almost same.

When the price is P'' in the first figure, we can get the new quantity of demand and supply. The new quantity of demand is D'', and the new supply is S''. In this case, the supply is far more than demand. We call it Excess Supply(CD). if we want to move point C and point D to the point Eq, the producers have to alter the price.

So the price has to be reduced with time changing. As time passing, the point C and point D will move to the point Eq. it means the quantity of demand and supply are almost same. They have a balance.

"The demand for a private good is different from that for a public. The social marginal benefit of a private good is the same as the marginal benefit to the individual who consumes that good. The market demand or social marginal benefit curve for private good is the horizontal sum of the demand curves of each individual."

5.2 Public good

"In contrast, the social marginal benefit of a public good is the sum of the marginal benefit to each person who consumes the good. Because a public good lacks rivalry, many people can get pleasure from the same unit of output. As a consequence, the social demand curve or willingness-to-pay curve for a public good is the vertical sum of the demand curve of each individual."

As the public goods, like security, from this figure, we can see the more money you have paid the less risk will happen. What's more, these two curves have a point of intersection. At this point, these two curves have a balance. It means using this money can get less risk.

From this figure, we can know that it is a public good with inadequate provision. Firstly, security guards protect all the shops in this mall. Each guard cost P per hour. And the shop a (D' line) needs to have q guards. But the shop b (D'' line) does not want any guard. If every shop acts independently, the equilibrium is point eq'. "Because a guard patrolling the mall protects both shops at once, the marginal benefit to society of an additional guard is the sum of the benefit to each other. Therefore, the social equilibrium is eq''." Then shop b can get the free guard.

6. References:





Microeconomics by Jeffey M. Perloff P648-649

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