what is microeconomics?
Answers
Answer:
Microeconomics (from Greek prefix mikro- meaning "small" + economics) is a branch of economics that studies the behaviour of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
Answer:
Microeconomics is the social science that studies the implications of human action, specifically about how those decisions affect the utilization and distribution of scarce resources. Microeconomics shows how and why different goods have different values, how individuals make more efficient or more productive decisions, and how individuals best coordinate and cooperate with one another. Generally speaking, microeconomics is considered a more complete, advanced, and settled science than macroeconomics.
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What is Microeconomics?
KEY TAKEAWAYS
Microeconomics studies the decisions of individuals and firms to allocate resources of production, exchange, and consumption.
Microeconomics deals with prices and production in single markets and the interaction between different markets but leaves the study of economy-wide aggregates to macroeconomics.
Microeconomists use mathematics as a language to formulate theories and observational studies to test their theories against the real-world performance of markets.
Understanding Microeconomics
Microeconomics is the study of economic tendencies, or what is likely to happen when individuals make certain choices or when the factors of production change. Individual actors are often grouped into microeconomic subgroups, such as buyers, sellers, and business owners. These groups create the supply and demand for resources, using money and interest rates as a pricing mechanism for coordination.
The Uses of Microeconomics
As a purely normative science, microeconomics does not try to explain what should happen in a market. Instead, microeconomics only explains what to expect if certain conditions change. If a manufacturer raises the prices of cars, microeconomics says consumers will tend to buy fewer than before. If a major copper mine collapses in South America, the price of copper will tend to increase, because supply is restricted. Microeconomics could help an investor see why Apple Inc. stock prices might fall if consumers buy fewer iPhones. Microeconomics could also explain why a higher minimum wage might force The Wendy's Company to hire fewer workers. Microeconomics can address questions like these that might have very broad implications for the economy; however, questions about aggregate economic numbers remain the purview of macroeconomics, such as what might happen to the gross domestic product (GDP) of China in 2020.
Method of Microeconomics
Most modern microeconomic study is performed according to general equilibrium theory, developed by Léon Walras in Elements of Pure Economics (1874) and partial equilibrium theory, introduced by Alfred Marshall in Principles of Economics (1890).1 The Marshallian and Walrasian methods fall under the larger umbrella of neoclassical microeconomics. Neoclassical economics focuses on how consumers and producers make rational choices to maximize their economic well being, subject to the constraints of how much income and resources they have available. Neoclassical economists make simplifying assumptions about markets—such as perfect knowledge, infinite numbers of buyers and sellers, homogeneous goods, or static variable relationships—in order to construct mathematical models of economic behavior.
These methods attempt to represent human behavior in functional mathematical language, which allows economists to develop mathematically testable models of individual markets. As logical positivists, neoclassicals believe in constructing measurable hypotheses about economic events, then using empirical evidence to see which hypotheses work best. Unlike physicists or biologists, economists cannot run repeatable tests, so their empirical research depends on the collection and observation of economic data from real-world markets. The economic efficiency of markets is then determined by how well real markets adhere to the rules of the model.
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