Microeconomics
Microeconomics is the study of how individual nations, corporations, or people behave given certain economic constraints. Although the name suggests that microeconomics only pertains to small economic transactions, this is a common misconception. It may pertain to any transaction conducted on a small or large level. Let us now take a look at some common applications of microeconomics.
Finance
The field of finance is a major aspect of business which encompasses many microeconomic theories. As it is the study of how individuals, corporations, or nations allocate their resources in order to maximize returns, microeconomic theory has much to contribute to the field of finance.
For example, the idea of discount rates (or effect of interest rates on prices) is a principle of finance. The field of finance has used the Fisher Equation in calculating and/or predicting interest rates as a means of discounting future values of money.
Industrial Organization
The field of industrial organization is the study of how organizations operate given the constraints of the marketplace. Industrial organization may be used to explain how an individual firm’s hierarchy is maintained, why there are a certain number of firms in a market, or why the prices and/or quantity are set at a certain number. To do so, industrial organization may hold market constraints constant, and change variables within firms in order to conclude why prices and quantities are at equilibrium at a certain point.
Political Economy
Political economy, as the name suggests, is the study of how economics is put into practice given the constraints of real-world politics. Since most of the time economic theories assume highly impractical constants, political economy attempts to change these assumptions in order to make theories more realistic in their applications.
The field of political economy has many applications. For example, political economy can be used to describe how governments use their power to provide services for their constituencies. Dictators, who have relatively high bargaining power relative to their constituents may provide less public services, as their position of power is more dependent on their ability to maintain their bargaining power over pleasing the public.
Furthermore, a politician in a more democratic system may have to provide better public services in order to stay in office, as one's constituency can damage or end a political career if unsatisfactory policies are set forth.