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MicroEconomics

Microeconomics can be defined in a number of different ways:

“Microeconomics deals with the decision making and market results of consumers and firms.”

“Microeconomics is the study of the economic behavior of individual consumers, firms, and industries and the distribution of total production and income among them. It considers individuals both as suppliers of labor and capital and as the ultimate consumers of the final product.”

“The study of economics at the level of individual consumers, groups of consumers, or firms… The general concern of microeconomics is the efficient allocation of scarce resources between alternative uses but more specifically it involves the determination of price through the optimizing behavior of economic agents, with consumers maximizing utility and firms maximizing profit.”

Microeconomics is a field of study that focuses on how an individual’s behavior and decisions affect the demand and supply of goods and services. While Macroeconomics studies national and international economic transactions, Microeconomics on the other hand, studies the actions of individuals, households and businesses.

Microeconomics lends itself to many different areas of specialization. The two most significant areas where microeconomics is applied to are price theory and labor economics. However, no matter what the area of specialization may be, there is one economic principle at the foundation of all microeconomic theories. This is the supply and demand principle. Theoretically, all markets are perfectly competitive, with supply and demand driving prices. However, in practice, individuals and groups can directly affect the supply and demand of products and services.

What kind of economic questions does Microeconomics answer?

This is a very interesting question, which leads to an even more interesting answer. The kinds of questions answered by Microeconomics include:

• If the price of a luxury product dropped, will its sale increase?
• If an employee gets a raise, does his productivity increase or decrease?
• Why are career women getting pregnant at an increasingly higher age?

If you answer these questions based on statistical and analytical data, you will find that the answer to all these questions ultimately is encompassed in the supply and demand theory. Even though you will find that all answers to the question may not be the same, Microeconomics is based on the assumption that all answers must be rational. The role of the economist specializing in microeconomics is then to understand and explain the exact nature of relationship between the supply and demand of different aspects in different scenarios.

Another key area of specialization within Microeconomics is the study of Market Dynamics. Economists specializing in Microeconomics study market failure in great detail. Market failure does not imply the collapse of the market. It simply states the fact that the market is inefficient. Economists study the causes of market failure which may include misallocation of goods and services, presence of monopolies, lack of accurate information, etc.

Another important concern of Microeconomics is Opportunity cost. Microeconomics lends itself to study of opportunity costs in a way that macroeconomics does not. In microeconomics, it is possible to study the specific opportunities that become unavailable as they use their resources for other purposes.

Tags: Economics, Income, market, price

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