DEFINITION of 'Microeconomics'

The branch of economics that analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of firms and households. It is concerned with the interaction between individual buyers and sellers and the factors that influence the choices made by buyers and sellers. In particular, microeconomics focuses on patterns of supply and demand and the determination of price and output in individual markets (e.g. coffee industry).


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BREAKING DOWN 'Microeconomics'

The field of economics is broken down into two distinct areas of study: microeconomics and macroeconomics. Microeconomics looks at the smaller picture and focuses more on basic theories of supply and demand and how individual businesses decide how much of something to produce and how much to charge for it. People who have any desire to start their own business or who want to learn the rationale behind the pricing of particular products and services would be more interested in this area.

Macroeconomics, on the other hand, looks at the big picture (hence "macro"). It focuses on the national economy as a whole and provides a basic knowledge of how things work in the business world. For example, people who study this branch of economics would be able to interpret the latest Gross Domestic Product figures or explain why a 6% rate of unemployment is not necessarily a bad thing. Thus, for an overall perspective of how the entire economy works, you need to have an understanding of economics at both the micro and macro levels.

  1. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  4. The Clark Medal

    An informal name for the John Bates Clark Medal, which is a prize ...
  5. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  6. Aggregate Supply

    The total supply of goods and services produced within an economy ...
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  3. How can a company or entity challenge the absolute advantage of another company?

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  4. How does marginal utility relate to indifference curves in microeconomics?

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