Background
Applied microeconomics refers to the practical application of microeconomic principles to analyze various sectors and sub-sectors within the economy. Unlike theoretical microeconomics, which focuses on abstract modeling and principles, applied microeconomics utilizes these theories to address real-world problems and scenarios.
Historical Context
The evolution of applied microeconomics can be traced back to the increasing complexity of economic systems and the demand for more specific economic analysis. From the industrial revolution to modern times, as economies expanded and diversified, the need for analyzing different sectors became essential. Applied microeconomics emerged as a solution to address these needs with dedicated focus areas.
Definitions and Concepts
Applied microeconomics encompasses various specialized fields within the broader domain of microeconomics. It includes:
- Industrial Organization: The study of how firms compete, market structure, firm behavior, and regulations.
- Labour Economics: Analysis of labor markets, wage determination, employment, and income distribution.
- Public Economics: The examination of government policies, taxation, public expenditure, and resource allocation.
- Health Economics: Focus on health care systems, the behavior of individuals and institutions, and health policy.
- Urban Economics: Study of urban areas, land use, housing markets, and local government policies.
Major Analytical Frameworks
Classical Economics
In the context of Classical Economics, applied microeconomics would dwell into how markets function in an equilibrium state and emphasize the role of self-regulation and price mechanisms within specialized sectors.
Neoclassical Economics
From a Neoclassical Economics perspective, applied microeconomics focuses on optimizing behavior under constraints, whether it’s firms in an industrial organization or individuals in labor markets.
Keynesian Economic
Applying Keynesian Economics might mean looking at how government intervention can rectify underemployment or sub-optimal health systems, enhancing the stability and efficiency of different economic segments.
Marxian Economics
Marxian Economics uses applied microeconomics to study how different economic systems affect the distribution of resources and power dynamics, with specific attention to labor exploitation and market failures.
Institutional Economics
Institutional Economics would apply microeconomics by investigating the roles of institutions and their influence on economic behavior and market outcomes within different sectors.
Behavioral Economics
From the Behavioral Economics perspective, applied microeconomics examines how psychological factors and cognitive biases influence economic decisions in health, labor, public, and urban economics.
Post-Keynesian Economics
Post-Keynesian Economics employs applied microeconomic principles to advocate for policies that address income disparities, unemployment, and promote market fairness across different sectors.
Austrian Economics
Using principles from Austrian Economics, applied microeconomics would analyze the role of entrepreneurial discovery, market processes, and decentralized knowledge within commercial and labor markets.
Development Economics
In Development Economics, applied microeconomics focuses on the challenges faced by developing economies, such as firm growth, labor market dynamics, urbanization, and health infrastructure.
Monetarism
Monetarism utilizes applied microeconomics to study the impact of monetary policy on individual behavioral elements of specific markets, such as inflation’s influence on labor contracts or firm pricing strategies.
Comparative Analysis
Applied microeconomics offers a unique approach across different economic theories, making it indispensable for practical policy formulations and economic planning. By comparing various specialized areas, like comparing labor economics to health economics, one can find the different underlying assumptions as well as converging policy recommendations.
Case Studies
- Industrial Organization: Analysis of antitrust cases and market regulation.
- Labour Economics: Case studies on minimum wage impact on employment.
- Public Economics: Research on the efficiency of fiscal policy measures.
- Health Economics: Evaluation of national healthcare systems and reforms.
- Urban Economics: Studies on urban sprawl and housing market dynamics.
Suggested Books for Further Studies
- “Industrial Organization: Theory and Applications” by Oz Shy.
- “Labor Economics” by George J. Borjas.
- “Public Finance and Public Policy” by Jonathan Gruber.
- “Health Economics” by Charles E. Phelps.
- “Urban Economics” by Arthur O’Sullivan.
Related Terms with Definitions
- Microeconomics: The study of individual, household, and firm behavior in decision making and the allocation of resources.
- Industrial Organization: A branch of applied microeconomic theory that analyses the behavior of firms in the marketplace with respect to competition, market power, and market regulation.
- Labour Economics: The study of workforces, including employment rates, wages, labor laws, and workforce productivity.
- **Public Economics
