AIMS AND VIEWS OF THE STUDY OF MICROECONOMIC THEORY (ECON 601)

Microeconomic theory is a field of economics that seeks to study the behavior of households and
firms alike, in an economy. Under this is an extensive analysis of issues bordering these two
economic agents.

First of all, we consider the theory of consumer behaviour. This topic aims at trying to explain
the inherent reasoning and motives behind consumption decisions that confront consumers daily.
It makes cogent and reasonable assumptions, some of which are in conformity with real –life
situations. For example, the assumption of non-satiation is a direct proof and explanation of why
consumers always prefer more to less of a commodity in order to achieve a certain level of
utility. Again, it also assumes that all consumers are rational. This is no means a mediocre
explanation of the natural endowment of consumers as rational beings. This therefore helps make
analysis easier to do under this field of study. It also helps us to know what commodities or
consumption bundles to spend our scarce resources (income) on. Once income is not enough to
purchase all our wants and needs, we need a framework that will help us plan towards reasonable
consumption patterns, and this study helps us to do this. It simply urges us to consume
commodity bundles which helps maximize our utility or satisfaction, without room for wastage
of scarce resources. This study also helps us appreciate the hitherto missing link between utility
of consumers and their expenditure levels. With prices being unstable, how will a consumer
respond to such changes and subsequent changes in real income? Nonetheless, it also tries to
answer real questions such as how consumers alike will respond to a change in their nominal
incomes with respect to consumption bundles of a commodity. All in all, this course tries to
explain certain weird decisions of some consumers in terms of say, consuming less of a
commodity when its own price falls. This helps classify commodities into normal, inferior and
even giffen goods.

The study of uncertainty and risk is by no means an interesting study which captures a vital
aspect of consumer behavior. Here, we try to explain the reasoning behind why certain
consumers are risk averse, whiles others are risk loving, and yet another being risk neutral. Now,
given that a particular action or venture involves risk, we try to explain the various responses
from various consumers depending on their risk tolerance levels. Given the various risky
ventures, we try to establish the link between what a consumer seeks to gain from embarking on
a risky venture. By this we deal with what we call the expected utility. The resulting decision
from this stems from being able to evaluate hypothetically the risk associated with each venture,
which we try to do in this study. Ultimately, we learn to be cautious if we are embarking on any
venture depending on what we stand to gain or lose, or even by how much.

The theory of the firm is a variant of the consumer theory, and now considers producers and
firms as well as production processes. If we have to produce a certain output, then this study
helps us determine the combination of various inputs needed to arrive at a feasible output.
Having produced this output, what profit levels do producers stand to gain? This we try to
establish. However, this cannot be done in isolation of cost, so we consider certain costs incurred
in the production process which will eventually determine whether a producer will make profits
or not. Now, it is a fact that producers produce not only at one time, but rather, over a period of
time, and this we capture in the long run and short run analysis by which we determine how this
impacts on the costs of producers.

The study of inter-temporal choices tries to explain the behaviours of consumers and the
economy over time. Hence, we move away from the static models we know previously to the
real world condition of a continuous time period.

Lastly, by the study of Game theory, we seek to understand the forms and nature of interaction
between decision makers. Undoubtedly, this study tells us the real decisions made by economic
agents, because it has proven to be the most appropriate for most economic behaviours.

So, in conclusion, it can be said that the main aim of this study is to express real world
behavioural patterns of various economic agents and tries as much as possible to practicalize the
concepts involved. It is my hope that this will serve as a good platform for a compelling career as
an economist, by making vital decisions taking into consideration the various economic agents.