Definition of microeconomics
That field that deals with the small-scale activities such as that of the individual or company.
Examples of microeconomics in the following topics:
- Both disciplines are about maximization: microeconomics is about maximizing profit for firms, and surplus for consumers and producers, while macroeconomics is about maximizing national income and growth.
- The main difference between microeconomics and macroeconomics is scale.
- Microeconomics studies the behavior of individual households and firms in making decisions on the allocation of limited resources.
- Another way to phrase this is to say that microeconomics is the study of markets.
- Microeconomics does consider how macroeconomic forces impact the world, but it focuses on how those forces impact individual firms and industries.
- Microeconomics focuses on individual markets, while macroeconomics focuses on whole economies.
- Microeconomics deals with the economic interactions of a specific person, a single entity, or a company.
- Therefore, microeconomics is the study of markets.
- The two key elements of this economic science are the interaction between supply and demand and scarcity of goods .One of the major goals of microeconomics is to analyze the market and determine the price for goods and services that best allocates limited resources among the different alternative uses.
- Microeconomics assumes businesses are rational and produce goods that maximizes their profit.
- If each firm takes the most profitable path, the principles of microeconomics state that the market's limited resources will be allocated efficiently.The science of microeconomics covers a variety of specialized areas of study including:Industrial Organization: the entry and exit of firms, innovation, and the role of trademarks.Labor Economics: wages, employment, and labor market dynamics.Financial Economics: topics such as optimal portfolios, the rate of return to capital, and corporate financial behavior.Public Economics:the design of government tax and expenditure policies.Political Economics: the role of political institutions in policy.Health Economics: the organization of health care system.Urban Economics: challenges faced by cities, such as sprawl, traffic congestion, and poverty.Law and Economics: applies economic principles to the selection and enforcement of legal regimes.Economic History: the history and evolution of the economy.
- Microeconomics deals with the economic interactions of a specific person, a single entity or a company; it is the study of markets.
- Economics is comprised of many specializations; however, the two broad sub-groupings for economics are microeconomics and macroeconomics.MacroeconomicsMacroeconomics is a branch of economics that focuses on the behavior and decision-making of an economy as a whole .
- In this manner it differs from the field of microeconomics, which evaluates the motivations of and relationships between individual economic agents.IndicatorsMacroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions and develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, government spending, and international trade.
- A focus of the subject is how economic agents behave or interact both individually (microeconomics) and in aggregate (macroeconomics).
- Microeconomics examines the behavior individual consumers and firms within the market, including assessment of the role of preferences and constraints.
- Formal economic modeling began in the 19th century with the use of differential calculus to represent and explain economic behavior, such as utility maximization, an early economic application of mathematical optimization in microeconomics.
- The notion of rationality is therefore central to any understanding of microeconomics.
- The aggregate demand curve is downward sloping but in variation with microeconomics, this is as a result of three distinct effects: the wealth effect, the interest rate effect and the exchange-rate effect.
- In microeconomics, public choice analyses collective decision making and studies economic models of political processes including rent-seeking, elections, legislatures, and voting behavior.
- Microeconomics assumes that firms and businesses are profit-seeking.