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October 16, 2018 

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MICROECONOMIC GOALS:

Two conditions of the mixed economy that are most important for microeconomics, including efficiency, and equity, that are generally desired by society and pursued by governments through economic policies.
Microeconomic goals are two of the five economic goals of a mixed economy that are most important to the study of microeconomics. They are efficiency and equity.

Efficiency

Efficiency is achieved when society is able to obtain the greatest amount of satisfaction from available resources. With efficiency, society cannot change the way resources are used in any way that would increase the total amount of satisfaction obtained by society. The pervasive scarcity problem is best addressed when limited resources are used to satisfy as many wants and needs as possible.

While efficiency is indicated by equality between demand price and supply price for a given market, unfortunately there are no clear-cut comprehensive indicators for attaining this efficiency goal. While it is possible, in theory, to pinpoint what is needed for efficiency, the complexity of the economy makes the task difficult to accomplish in practice.

Equity

Equity is achieved when income and wealth are "fairly" distributed within a society. Almost everyone wants a "fair" distribution. However, what constitutes a fair and equitable distribution is debatable. Some might contend that equity is achieved when everyone has the same income and wealth. Others contend that equity results when people receive income and wealth based on the value of their production. Still others argue that equity is achieved when each has only the income and wealth that they need.

Equity means income and wealth are distributed according to a standard of fairness. But what is the fairness standard? It could be equality. Or it could be the productive value of resources. Or it could be need. Because justifications for each are easily identified, it is also easy to see that standards for equity moves deeply into the realm of normative economics.

Tradeoffs

The two microeconomic goals of efficiency and equity are widely considered to be beneficial and worth pursuing. Each goal, achieved by itself, improves the overall well-being of society. Efficiency is better than inefficiency. An equitable distribution is better than an inequitable one.

However, the pursuit of one goal often restricts attainment of the others. For example, policies that promote efficiency might cause inequities or policies that improve equity might cause inefficiency. Microeconomic goals are also often in conflict with the macroeconomic goals of full employment, stability, and growth.

Consider a hypothetical situation, depicted by the hypothetical Republic of Northwest Queoldiolia, in which the pursuit of one goal limits achieving another goal.

  • Efficiency and Equity: The Congress of Northwest Queoldiolia seeks to address historical ethnic inequities by establishing an affirmative action program. Opportunities for ethnic minorities provided by the program enables more equal distributions of income and wealth, but efficiency is prevented because some of the employed workers are less skilled at their jobs.

Policies and Politics

The pursuit of these two microeconomic goals is inherently an act of normative economics. In fact, the "norm" part of term normative economics is synonymous with the word "goal." Normative economics is essential to the pursuit of economic goals.

In a mixed economy, the pursuit of these goals is largely directed by governments. This, of course, brings into play the wonderful world of politics and never-ending debates over which of these two microeconomic goals is most worth pursuing with economic policies.

As the discussion turns to politics and policies, two viewpoints tend to emerge--liberal and conservative. Generalities are, of course, fraught with exceptions. However, with that caution in mind, note that each of the two political views have historically placed greater emphasis on the attainment of some goals over others.

Liberals have tended to prefer equity over efficiency and conservatives have usually preferred efficiency over equity.

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Recommended Citation:

MICROECONOMIC GOALS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: October 16, 2018].


Check Out These Related Terms...

     | economic goals | efficiency | equity | economic growth | macroeconomic goals | full employment | stability |


Or For A Little Background...

     | microeconomics | normative economics | political views | conservative | liberal | political views | government functions | distribution standards | free enterprise |


And For Further Study...

     | mixed economy | allocation | division of labor | specialization | seven economic rules | three questions of allocation | four estates | production possibilities | fallacies | profit maximization | utility analysis | short-run production analysis | long-run production analysis | elasticity | perfect competition, efficiency | monopoly, efficiency |


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