Mathematics

Dear Colleagues,

For many decades now, research in economics has mainly used statistical tools to validate its theoretical models or to obtain relevant empirical results on the main topics and issues it addresses. In applied economics, statistical and econometric methods have become the essential working tools.

This Special Issue aims to bring together recent developments on the statistical methods applied to economic research from a wide range of perspectives. Both methodological and empirical contributions are welcome, as well as international case studies at different geographical scales and time spans. This includes historical perspectives, theoretical discussions, policy design, micro and macro approaches, and international and regional studies, among others. The empirical articles in this Special Issue can be on a variety of topics, but we would like them to be oriented towards the main topics discussed today, such as the causes and dynamics of economic growth, the determinants of international trade, environmental economics and climate change, inequality in income distribution, globalization, migration, public expenditure and income, natural resources, and welfare economics.

Prof. Dr. Maria-Isabel Ayuda

Prof. Dr. María Dolores Gadea Rivas

Guest Editors

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Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1800 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Microeconomics Definition, Uses, and Concepts

What Is Microeconomics?

Microeconomics is the social science that studies the implications of incentives and decisions, specifically about how those affect the utilization and distribution of resources. Microeconomics shows how and why different goods have different values, how individuals and businesses conduct and benefit from efficient production and exchange, and how individuals best coordinate and cooperate with one another. Generally speaking, microeconomics provides a more complete and detailed understanding than macroeconomics.

2:23 What is Microeconomics?

Key Takeaways Microeconomics studies the decisions of individuals and firms to allocate resources of production, exchange, and consumption.

Microeconomics deals with prices and production in single markets and the interaction between different markets but leaves the study of economy-wide aggregates to macroeconomics.

Microeconomists formulate various types of models based on logic and observed human behavior and test the models against real-world observations.

Understanding Microeconomics

Microeconomics is the study of what is likely to happen (tendencies) when individuals make choices in response to changes in incentives, prices, resources, and/or methods of production. Individual actors are often grouped into microeconomic subgroups, such as buyers, sellers, and business owners. These groups create the supply and demand for resources, using money and interest rates as a pricing mechanism for coordination.

The Uses of Microeconomics

Microeconomics can be applied in a positive or normative sense. Positive microeconomics describes economic behavior and explains what to expect if certain conditions change. If a manufacturer raises the prices of cars, positive microeconomics says consumers will tend to buy fewer than before. If a major copper mine collapses in South America, the price of copper will tend to increase, because supply is restricted. Positive microeconomics could help an investor see why Apple Inc. stock prices might fall if consumers buy fewer iPhones. Microeconomics could also explain why a higher minimum wage might force The Wendy's Company to hire fewer workers.

These explanations, conclusions, and predictions of positive microeconomics can then also be applied normatively to prescribe what people, businesses, and governments should do in order to attain the most valuable or beneficial patterns of production, exchange, and consumption among market participants. This extension of the implications of microeconomics from what is to what ought to be or what people ought to do also requires at least the implicit application of some sort of ethical or moral theory or principles, which usually means some form of utilitarianism.

Method of Microeconomics

Microeconomic study historically has been performed according to general equilibrium theory, developed by Léon Walras in Elements of Pure Economics (1874) and partial equilibrium theory, introduced by Alfred Marshall in Principles of Economics (1890). The Marshallian and Walrasian methods fall under the larger umbrella of neoclassical microeconomics. Neoclassical economics focuses on how consumers and producers make rational choices to maximize their economic well being, subject to the constraints of how much income and resources they have available. Neoclassical economists make simplifying assumptions about markets—such as perfect knowledge, infinite numbers of buyers and sellers, homogeneous goods, or static variable relationships—in order to construct mathematical models of economic behavior.

These methods attempt to represent human behavior in functional mathematical language, which allows economists to develop mathematically testable models of individual markets. Neoclassicals believe in constructing measurable hypotheses about economic events, then using empirical evidence to see which hypotheses work best. In this way, they follow in the “logical positivism” or “logical empiricism” branch of philosophy. Microeconomics applies a range of research methods, depending on the question being studied and the behaviors involved.

Basic Concepts of Microeconomics

The study of microeconomics involves several key concepts, including (but not limited to):

Deductive & Inductive Methods of Economic Analysis | Merits | Demerits

Like any other science, Economics adopts two important methods in its investigations and formulation of laws and principles. The two methods are

Let us discuss the importance of these two methods.

Deductive method is known as the analytical abstract a priori method. Here we start with certain formal data and assumptions. Then by logical reasoning we arrive at certain conclusions. We start with undisputed fundamental facts and after adding some assumptions we build up a theory. For instance, it is assumed that businessmen aim at maximum profit. It follows from this that businessmen buy the materials in the cheapest market and sell it in the dearest market.

In Deductive method of Economic Analysis we proceed from the general to the particular. This is also known as an hypothetical method for some of the assumptions may not correspond to actual facts, but very near actual facts which may be used as premise for starting, reasoning and drawing conclusions. In economics we start with very simple premises and work up gradually or more and more complex hypotheses.

A complete form of deductive method consists of three stages, viz.,

• instance and testing by means of further observations.

Deductive reasoning provides us with hypotheses or generalizations. If the hypotheses are tested and verified with relevance to facts, we have valid economic laws.

Deductive method has the following ‘merits’

1. Deductive method is exceedingly simple. For example, the law that the utility derived by an individual from a commodity goes on diminishing with every successive addition is a self-evident truth from which we may draw many logical conclusions, viz., larger the stock of money, the lower shall be the utility of money; rich persons have lesser marginal utility of money than the poor people; so taxes should not be levied on proportional basis. If taxes are levied proportionately, the sacrifice of the poor will be larger than the rich. This is against the Canon of equity, etc. Thus the principle of progressive taxation is derived from the law of diminishing utility through deductive reasoning.

2. Deductive method obviates the necessity of experimentation. Economics being a social science, experimentation may not be available as in the case of physics or chemistry. So, the next best alternative to experiment is deductive reasoning. According to Boulding this method of deductive reasoning is the method of intellectual experiment.

3. The deductive method results in accuracy and exactness in generalization, because of logical reasoning. The method gives a very high standard of precision in abstract economic reasoning.

Deductive method has its drawbacks also:

1. Deduction is based mainly on assumptions which are perfectly valid. If assumptions are wrong, generalizations made on the basis of wrong assumptions will be imperfect and invalid. All economic laws are based on too many assumptions where there are more scope for committing errors through wrong hypotheses.

2. In deduction there is too much of abstraction and economists by means of their intellectual exercises produce only “intellectual toys” having little connection with reality.

3. Deductive generalizations started on wrong premises will be dangerous when such generalization claim universal validity. Then such faulty generalizations are made use of in framing government policies, the results would be nothing but disastrous. For example, J.B.Say, claimed universal validity for his ‘Law of Markets’ in which he maintained that supply creates its own demand and there will not be over-production in the market. But this celebrated ‘Law of Market’ was torn to pieces when critics proved that Say’s Law was wrong and overproduction would be possible.

In this method, economists proceed from a practical angle to problems of science to reduce the gulf between theory and practice. Induction is done by two forms, viz. experimentation and statistical form. Facts are collected first, arranged and conclusions are drawn. Then these general conclusions are further verified with reference to actual facts.

The inductive method is generally associated with the statistical form of inductions. The statistical approach has a larger field in economic investigations than the method of experimentation. Further, the method of statistical induction is indispensable for the formulation of economic policy. Malthus presented his famous theory of population only after studying the facts of population in various countries; He then used statistics to support his theory. Similarly Engel, the German statistician employed inductive method and used statistics to formulate his law of consumption.

Inductive method has the following merits:

1. It is highly practical add realistic as it describes things as they are.

2. It is helpful in verifying the conclusions of the deductive method.

3. Economic laws under this method are not universal but valid only under certain conditions.

Inductive method has the following limitations:

1. When the investigators lack a balanced judgement there is the risk of drawing hurried conclusions based on inadequate and irrelevant facts and data.

2. Collection of facts in the inductive process is a highly complex and complicated job warranting extraordinary understanding to alienate economic from non-economic factors.

3. Mere induction alone will not deliver goods unless it is supplemented by means of deductive reasoning. Without deduction, the inductive method would result in producing only a mass of unrelated and unconnected facts.

From the above discussion, we can infer that there is no point in pleading one method against the other. The two methods have to be made use of or blended to achieve the required objective. The two methods, deductive and inductive, are not competitive, but complementary in nature helping the investigator.

Just, like any other matter, the issue, whether deductive method is to be preferred to inductive method or vice versa, became a raging controversy in the last century. The classical school of Britain represented by David Ricardo, Malthus, J.S.Mill, N.Senior, etc., strongly advocated deduction and affirmed their support in deductive methodology. On the contrary the Historical School in Germany represented by Carl Knies, Roscher, Hildebrand, etc., affirmed faith in inductive method. The controversy over methodology went on till Alfred Marshall brought about a compromise.