Microeconomics is the study of human action and interaction. The most common uses of microeconomics deal with individuals and firms that trade with one another, but its methods and insights can be applied to nearly every aspect of purposeful activity. Ultimately, microeconomics is about human choices and incentives.

Most people are introduced to microeconomics through the study of scarce resources, money prices, and the supply and demand of goods and services. For example, microeconomics is used to explain why the price of a good tends to rise as its supply falls, all other things being equal. These insights have obvious implications for consumers, producers, firms and governments.

Many academic settings treat microeconomics in a narrow, model-based and quantitative manner. Traditional supply and demand curves graph the quantity of a good in the market against its price. These models attempt to isolate individual variables and determine causal relationships or at least strong correlative relationships. Economists disagree about the efficacy of these models, but they are widely used as good heuristic devices.

The basic assumptions of microeconomics as a science, however, are neither model-based nor quantitative. Rather, microeconomics argues that human actors are rational and that they use scarce resources to accomplish purposeful ends. The dynamic interaction between scarcity and choice helps economists discover what humans consider valuable. Exchange, demand, prices, profits, losses and competition arise when humans voluntarily associate with each other to achieve their separate ends. In this sense, microeconomics is best thought of as a branch of deductive logic; models and curves are simply manifestations of these deductive insights.

Microeconomics is often contrasted with macroeconomics. In this context, microeconomics focuses on individual actors, small economic units and direct consequences of rational human choice. Macroeconomics tends to study large economic units and the indirect effects of interest rates, employment, government influence and money inflation.

  1. What's the difference between microeconomics and macroeconomics?

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  2. What math skills do I need to study microeconomics?

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  3. What are some examples of positive correlation in economics?

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  4. Why are price and quantity inversely related according to the law of demand?

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  5. What factors influence competition in microeconomics?

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  6. How does aggregate demand affect price level?

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