Microeconomics

Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. This contrasts with Macroeconomics, which involves the "sum total of economic activity, dealing with the issues of growth, inflation, and unemployment."

Overview

Microeconomics focuses on the mechanisms of market supply and demand that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize its production and capacity so it could lower prices and better compete in its industry.

Key Concepts

Microeconomics covers a wide variety of topics, including (but not limited to):

• Demand: The desire of consumers, businesses, and government to buy goods and services.
• Supply: The total amount of a specific good or service available to consumers.
• Market Equilibrium: A situation in which the supply of an item is exactly equal to its demand.
• Elasticity: A measure of a variable's sensitivity to a change in another variable.
• Consumer Theory: A theory of how people decide what to spend their money on, based on the idea of utility.
• Production Theory: A theory of how businesses decide how much of each commodity to produce.

Applications

Microeconomics can be applied to a variety of fields, including:

• Business: Microeconomics can help businesses understand and predict consumer behavior, which can be used to determine pricing strategies, product development, and more.
• Public Policy: Policymakers often use microeconomic models to help understand the likely effects of different policy proposals.
• Environmental Economics: Microeconomics can be used to understand and address environmental issues, such as pollution and resource depletion.

See Also

• Macroeconomics
• Economic Theory
• Economic Models