Question

What are some examples of real-world microeconomics issues, for households and individuals?

Answer 1

Examples of some real world microeconomic issues for households:

1. The household as a whole constitute as the factor of production. These household supply factor services to the firms in the form of labour or entrepreneurship services to facilitate the production process. This in turn results in circular flow of money and goods in the economy. That is, when the households offer its services to the firms, they get monetary benefits in turn in the form of salary, wages, rent, or profits. This money or income received is in turn utilised to purchase the goods produced by the firms. If we view it from the commodity side of the market, the households help in production of goods, which in turn is supplied to them by the firms producing it in the first place. So for the households which may be running a family dairy unit, is utilising the members of its family unit for the factor services in dairy production. This output from dairy is in turn going to the market and becoming some or the other finished goods. These finished goods, maybe in the form of Cheese, or pizza, or curd is being purchased by the households for consumption. In the process it not only earns the profits, but also expending its earning in consumption.

2. The households, work within limited resources. Since the resources within which it operates is limited, there is a budget constraint, within which each household has to function. For every household it thus becomes important to prioritise their expenses first on the basis of needs and then on the basis of other factors. This decision making involved in the management of resources is undertaken to make the most optimum utilisation of resources. So for bulk purchasing of grocery every month, the household may choose to shop from a wholesale market, like Walmart over binge shopping every day in some local grocery store, As the former will result in greater savings, lesser wastage and more prudent use of monetary resources. This budgeting is undertaken in nearly all the households.

Examples of real world microeconomic issues for individuals:

1. All the individuals going to the market consciously or unconsciously makes the consumption decisions. These decisions involve rational judgement about how much utility can be derived from the consumption of a good, or how beneficial it can to purchase a particular good. An individual tends to weigh all the possible options available in front of him and weigh in the relative pros and cons of each purchase option available for him. Based on this, he makes his purchasing decision. Again we see a rational methodological judgment involved in decision making process, to ensure best possible use of the available scarce resources. For example the decision of an individual to pursue a career in music or science, will depend on this relative interest in both the fields. Even when he is equally efficient and passionate in both, he faces a constraint of time and money to make the judgement of which career option he should go with. This trade off between one career over the other results in the opportunity cost of leaving the other alternatives.

2. When we talk about the law of diminishing marginal utility, we see its practical applicability in our day to day lives as well. Whatever we do, if we tend to overdo it, it eventually creates a sense of dissatisfaction or discomfort after a certain point. So for example, if someone is hungry and decides to purchase a hot dog, in the initial units of consumption, he will feel satisfied and crave for more, but as he goes on consuming more and more units of hotdogs, he will eventually feel a level of discomfort. This is applicable in other areas of our day to day life as well, We may like watching a lot of videos. But as we keep on watching videos continuously, after certain number of videos, we will tend to feel disinterested and the find the videos unengaging.