Microeconomic Theory

Microeconomic Theory
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Microeconomic Theory
The most basic principles of economic transaction are examined by microeconomics through focusing behavior of individuals and businesses. The economic reality is acted upon by individuals’ assumptions, which surmise that decisions that are made by individuals or a company are aimed at maximizing profits. Individual entrepreneurs purchase produce from suppliers who have the best quality raw materials or resources and offering the lowest price possible. This decision enhances the operation of the business to become profitable since many consumers of the product are opting to purchase the product. An increase in rate of return results to entrepreneurs expanding their business to enhance growth and accommodate the ever increasing demand for the product. Using returns to purchase more goods and service is part of the economic model, as spending what is earned has a basic implying that the value of goods and services bought is more that the value of money earned. The decision of individuals forms the basis of microeconomic analysis because it creates the every day choice in business and government.
Oil in the US is considered to be price inelastic since consumers have to purchase the commodity at the same quantity regardless of the price. The microeconomic determines what price per gallon demand of oil that will have the effect of price decrease. Policies usually employ such study in formulating normative question on sustaining overall reduction in dependence of foreign oil. The surge in prices of gasoline in the US oil industry was as a result of increased demand and reduced supply of the commodity. The supply of oil was reduced because of the political instability of oil suppliers which saw a reduced supply of oil in the international market. This saw a reduced supply of the product by national oil venders while the demand oil the product was...