Concepts of Microeconomics

Posted: August 25th, 2021

Concepts of Microeconomics

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Concepts of Microeconomics

Introduction

As a social science, microeconomics investigates the effects of human activity on the distribution and utilization of scarce resources in an attempt to address the changing needs. By studying microeconomics, an individual gains the desired knowledge to understand the value of various goods, to make decisions regarding their use, and to be able to realize their economic viability. Several theories interplay when exploring the microeconomics of a selected region or country. For instance, the aspect of demand, supply, and equilibrium determines changes in price in a competitive market. Similarly, production theory highlights the processes involved in converting raw products (inputs) into usable forms (outputs). This paper analyses the concepts of trade-offs, incentives, government’s influence on different markets, the skills shortage, and the benefits of free trade to a nation.

I.    Trade-offs: Border Conflict between the U.S.A and Mexico

Trade-off refers to the concept of a compromising decision irrespective of its outcome to achieve a given result. Donald Trump’s administration, right from the day it assumed office, has been fighting to protect the interest of Americans. On several occasions, Trump has kept his threats alive, one of them being the closure of the Southern U.S. border which connects America and Mexico. However, Trump is seemingly unaware of the economic dangers his action is likely to have not only to the immigrant Mexicans but to the entire American economy.

Terminating cross-border movement of goods and services with Mexico, one of America’s major trading partners, could threaten the U.S. economy in general. Currently, the U.S. depends on supplies of fresh products from Mexico(Horsley, 2019). Imposing the cross-border ban would stop over $1.6 billion worth of goods from crossing back and forth each day(Horsley, 2019). Besides, Mexico delivers fifty million pounds of agricultural produce to a hundred warehouses found in Nogales(Horsley, 2019). Therefore, as Trump thinks of using the border excuse to address security concern in the region, going by his directives, the country will suffer a shortage in supply of peppers, fresh tomatoes, and eggplant.

II.    Salary Variation: How it Motivates and Demotivates

Most organizations have pay inequalities either at the employees’ level or at the managerial one. Workers respond differently when they learn about how much other colleagues earn when compared to their salaries. In an attempt to discover the degree of pay inequality and the salary non-disclosure policy, Zoë B. Cullen and Recardo Perez-Truglia (2018) conducted an experiment involving 2,060 employees from a commercial bank in Asia. The study investigated whether knowing how much managers earn could affect the productivity of junior workers or not. The key variables included emails, daily timestamps, and the sales data for the period of analysis. 

Discovering that managers earn more than previously is a motivating factor to most employees. The study estimated that when personnel found that their managers receive 10% more than what they had imagined, they would work extra hard to reach the levels of their bosses(Cullen & Perez-Truglia, 2018). For instance, they will tend to sell 1.1% more, send 1.3% more emails, and would probably spend 1.5% more hours on office duties(Cullen & Perez-Truglia, 2018). In essence, the workers’ capacity increases with more revelations of salary variation with the rise in seniority. Often, the motivation comes as a result of personal aspiration and the belief that in five years, the same staff could be on the same level as their leaders. Nevertheless, while it is easy for the workforce to feel comfortable and motivated by the vertical salary disparities, the trend is not the same when the difference involves employees themselves(Cullen & Perez-Truglia, 2018). Paying some workers more than their peers negatively affects the motivation level and the workrate in an organization. Therefore, it is unwise to focus on pay rises as an ideal option to inspire individual staff members.

III.    Influence of Government on Emerging Markets

On average, young people represent one-third of the working population despite their essential role in the growing economies and upcoming markets. According to Christine Lagarde and John Bluedorn (2019), roughly 20% of the youths aged between 15-24 years are neither working nor going to school. However, with the help of the governments from these emerging markets, it is possible to formulate policies that would ensure flexible markets open to accommodate the younger workforce. The young generation is an essential player in developing and growing given economies.

Government agencies together with the affected communities have a critical role in ensuring youths gain access to more opportunities, whether in education or the corporate world. As a result, Christine Lagarde and John Bluedorn (2019) have highlighted some approaches for the government to ensure more young people become productive in future. Firstly, hiring organizations should have a structure that reduces the significant and tenacious gender gaps, which is currently prominent in South and East Asian countries as well as in Latin America (Lagarde & Bluedorn, 2019). Secondly, through government intervention, a developing economy and an emerging market will have limited labor restrictions that have prevented the young generation from exploiting their capabilitiesin the past(Lagarde & Bluedorn, 2019). Consequently, these strategies will not only result in a more dynamic entrepreneurial ground for the young ones to explore; instead, they will set a sustainable platform for prospects.

IV.    Shortage of Skills

Major economies like the United States have recently experienced increasing worker shortage amid growing job openings. According to Lucia Mutikani (2018), the USA experienced a slowdown in the evolution of new job opportunities perhaps due to difficulty in finding qualified personnel to fill the vacant positions. Consequently, the nation had cases of rebounding job openings in October last year. A report by the monthly Job Openings and Labor Turnover Survey (JOLTS) indicated an overwhelming increase in several opportunities that needed new taskforce. For instance, the demand for labor increased by 119,000 to 7.1 million (Mutikani, 2018). This value represented an increase in job opening rate from 4.4% in September to 4.5% in October. As job openings continue to overpower the number of those looking for an occupation, there will be a significant decline in employment growth level in years to come.

V.    Benefits of Free Trade to an Economy

The imposition of trade restrictions does not damage the economy alone but also undermines the progress of producers and consumers. Through these restrictions, the major players have the limited choices of goods to buy, while at the same time, people endure the exorbitant prices of essential products and services. However, as Donald Boudreaux and Nita Ghei (2018) discovered, enforcing a free trade ensures a series of benefits both to the buyers and to the country as a whole. For instance, they argued that nations that have fostered free trade had opened prosperity avenues for their citizens (Boudreaux & Ghei, 2018). In fact, free trade gives opportunities for the locals to acquire quality products cheaply. It also encourages economic growth through commercial engagements and entrepreneurial growth and development across borders (Boudreaux & Ghei, 2018). Lastly, for the players to fit adequately in the competitive global and local markets, they have to raise their level of innovation including use of the internet to boost performance and efficiency in the delivery of goods and services.

Conclusion

Microeconomics is highly crucial as it investigates how human beings use their power to influence proper utilization of the scarce resources despite the pressure of an ever-increasing population. Through different theories, this paper highlighted how American directives on border conflict could result in trade-offs with much impacts on American industries and consumers. Moreover, while assessing the possibility of motivation or demotivation of staff through pay inequalities, it emerged that payment should not be used as a tool to increase employee work rate as it can result in a more demoralized workforce. Government is an essential player in the formulation and enforcement of policies that can eventually shape youth participation in an upcoming market. The primary intervention strategies include reducing the gender-based gaps that have existed for ages now. Lastly, just as skills are essential to the overall growth of a country’s economy, so is its ability to participate in free trade with other nations. 

References

Boudreaux, D., & Ghei, N. (2018). The benefits of free trade: Addressing key myths. Mercatus Center. Retrieved from https://www.mercatus.org/publication/benefits-free-trade-addressing-key-myths

Cullen, Z. B., & Perez-Truglia, R. (2018). The motivating (and demotivating) effects of learning others’ salaries. Harvard Business Review. Retrieved from https://hbr.org/2018/10/the-motivating-and-demotivating-effects-of-learning-others-salaries

Horsley, S. (2019). How closing the border would affect U.S. economy, from avocados to autos. NPR.Retrieved from https://www.npr.org/2019/04/02/708999622/southern-border-closure-would-have-consequences-for-u-s-economy

Lagarde, C., & Bluedorn, J. (2019). Unlimited opportunities: Creating more jobs for young people in emerging market and developing economies. International Monetary Fund.Retrieved from https://blogs.imf.org/2019/01/22/unlimited-opportunities-creating-more-jobs-for-young-people-in-emerging-market-and-developing-economies/

Mutikani, L. (2018). U.S. job openings data points to growing worker shortage. Reuters. Retrieved from https://www.reuters.com/article/us-usa-economy-jobs/u-s-job-openings-data-points-to-growing-worker-shortage-idUSKBN1O91TZ