Intermediate Microeconomics, Essay Example
Externalities and public Goods (intermediate Microeconomics)
The term externalities refer to situations when an individual’s actions affect another person’s well-being with the referred benefits and costs not shown in the market prices. This can be positive or negative. The externality becomes positive when an individual benefits after another individual cleans up the yard without charging the benefits as after regulation of power plant emissions. On the contrary, a negative externality occurs when ones actions damages those of the other. For instance, a factory can negatively affect other micro companies by polluting the environment.
The aspect of public goods is also economically referred to as nonrivalrous consumption. Moreover, according to the chapter, public goods can be referred to as nonexcludability where non payers are not excluded from good service benefits. Concepts on second hand smoke deprive a business of an effective environment to perform its duties and benefit from them. They deprive a firm or micro business of its property rights over nature hence encountering liabilities all the time. Moreover, other sources of funds for a micro economy include fund raisers on public broadcasts and speaking. Tying up to these aspects are the theories of Marxist and the institutional economic theory.
Marxist theory on ideas and public goods
According to Marxist theory, capitalism is one of the evolutionary phases in the development of economy right from the olden days. Capitalism involves cases where economists are able to vent ways and means of developing economy in their own perspectives using their individual means. According to Marxist, this is actually the real and practical way in which economic development got into the world based on individual ideas and public goods. It also exemplifies that every individual in a business or market set up has a sense of property rights and nature. Marxist believed that capitalism will eventually be the root cause of its own destruction within a world that has no private property. The theory relays that individual and private developers take a center stage in the development of economy. This sums up the various micro economic sectors in the world (Nicholson 256).
Within a society, workers are responsible for production of belongings hence the theory advocates for the labor theory of value. Labor is subtle to every production in the society. According to this theory, an existing system in the market paves way for capitalists to explore and own many of them. This is because of the fact that they are rich in machinery and factories. In the meant time, they participate in the exploitation of workers by depriving them a good share of what they have managed to produce. According to this theory, Marxist predicts that this rate of capitalism will lead to growing miseries among workers since they will engage in less economy machinery hence declaring workers jobless or of low income. In the meant time, the jobless workers will rough up and demand for the every means of production (Nicholson 79).This theory has varied pros and cons. It gives workers exposure to duly participate in bringing out the facets of economy hence contributing to the economy of a nation. Basing on the chapter, the theory looks like a free piece for many people to participate in the development of economy. It does not give room for a few numbers of individuals to take up the parameters of economy as done by other theories. On the contrary, the economy benefits only small scale economies or micro economies. It is only in rare cases that this state of economy adds up into a macro economy without an involvement of an outer hand.
Institutional theory of economics on Externalities and public goods
Institutional theory of economics perceive micro economic individual behavior as a sub set of the larger social structure influenced by present means of living and methodologies of thought. The theory gives no consideration to the narrow classical perception that people are influenced by their own self interests towards economic success. As a matter of fact, the theory proposes equity in terms of resource distribution within a given country. Moreover, according to this theory, human income comes as a result of an equitable resource allocation that will enable workers manage and produce in their own capacities and time.
This theory presents a variance of pros and cons. First, the theory assumes that individual motivations are pertinent to the successes to be achieved within a given sector of economy. This offers an enormous contribution to the entire parameters of economy within a nation. Moreover, the theory is normally easy to be understood by many people not like other theories of economy. On the contrary, the theory presents that economic development is subject to worker or small participants of economy alone. However, macro economics gets it way when larger companies and economies operate at a scale higher than that posed by the theory.
The theories discussed are quite relevant to the mainstream economics though they pose a number of differences and extensions. Considering facets attached to the neoclassical economics, a distinction is made between economics and its parameters as supply and demand within an individual’s rationality and potential to maximally generate profit or benefit. According to these theories, mathematical facets have offered appropriate methods to study different aspects of the economy of a given place. As relayed by the two theories above, it will take a mathematical figure for one to duly realize the merits of any theory as applied in the field.
As presented by the above theories, neoclassical economics is entwined in the modern forms of economy as those on Externalities and public goods. It has entirely grown and become one of the modern scales of economy being used by both macro and micro businesses. The main detractors of this economy as presented by the previous theories are that neoclassical economics is made up of many unrealistic and impractical assumptions that have not been tasted in the global market (Snyder 12-18). They fail to present real situations that actually meet the demands of the workers and customers in the market. Apart from this, these theories overlooks the fact that human beings are vulnerable to forces that make them make irrational choices. They pose many inequalities within the global debt and interrelations. To improve on these theories, more practical assumptions should be presented and tested over time. Besides this, these theories should be directed to serve varied forms of economies as both macro and micro economics together with Externalities and public goods within a large extends of market.
Nicholson, W. and Snyder, C., Intermediate Microeconomics and Its Application, New York, Centage, 2005. Print.
Nicholson, Walter. Intermediate Microeconomics and Its Application, London, Thomson/South-Western, 2004. Print.
Snyder, Chrostopher. Microeconomic Theory: Basic Principles and Extensions, Boston, Cengage Learning, 2011. Print.
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