![]() ![]() Prices and availability of inputs such as raw materials dictate production capacity. Business entities turn inputs like capital, labour, and land, into outputs. Producer theory is the branch of microeconomics that deals with the behaviour of business entities. Utility function is used in rational choice theory to analyse human behaviour. In economics, consumers are utility maximisers, meaning that they will purchase the optimal number of goods, such as food or clothing, that maximises their satisfaction or welfare, according to their budget. However, consumers are limited by budget constraint, which in turn limits the kinds of goods and services they’re able to purchase. Utility function is the key formula in consumer theory that measures welfare or satisfaction based on the consumption of certain goods. What are consumer theory and producer theory?Ĭonsumer theory is a branch of microeconomics that studies household behaviour. Behavioural economics is a separate interdisciplinary field within microeconomics that considers the psychological, social, and cognitive aspects of individual decision-making. Economists use mathematical modelling to understand behavioural influences on decision-making and other key influencing factors such as altruism and habit formation. Microeconomics studies the behaviour of these individual actors such as consumers and individual business entities.Įconomics is a broader field of study than finance requiring a solid grounding in mathematics, including linear algebra and calculus, as well as econometrics and statistics. Macroeconomics aims to decode the collective behaviour of individual actors and how that plays a part in shaping aggregate economic outcomes. The two primary areas of economics are macroeconomics and microeconomics. Governments rely on economists to formulate economic strategies that predict changes in spending and how these changes impact policies and other legislation. For example, house prices are dictated by demand and are affected by interest rates, which has a knock-on effect on the economy. The answers to these questions help economists understand current trends in supply and demand, and why the economy as a whole is behaving in the way that it is. Questions that an economist may ask themselves include: So what are the main differences and how can you discern which area you want to specialise in? What is economics?Įconomics looks at regional and global economies or markets and analyses the behaviour of people within these markets and economies. They are both concerned with the world of money, markets, and transactions but are very different in how they approach them. Economics and finance are disciplines that are interrelated but are not the same. ![]()
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