A:

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.

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

    Microeconomics is the study of individuals and business decisions, while macroeconomics looks at higher up country and government ... Read Answer >>
  2. What math skills do I need to study microeconomics?

    Find out how and why mathematics are used in microeconomics, what its limitations are and the kinds of math skills that economics ... Read Answer >>
  3. What are some examples of positive correlation in economics?

    Learn the most common examples of positive correlation in macroeconomics and microeconomics, including demand and price, ... Read Answer >>
  4. Why are price and quantity inversely related according to the law of demand?

    Discover why the cost of a good is inversely correlated to its quantity demanded according to the law of demand in microeconomic ... Read Answer >>
  5. What factors influence competition in microeconomics?

    Find out what influences competition in microeconomics and how perfect competition, monopoly and oligopoly vary in their ... Read Answer >>
  6. How does aggregate demand affect price level?

    Read about the relationship between aggregate demand and the general price level, and learn why it is difficult to determine ... Read Answer >>
Related Articles
  1. Managing Wealth

    Microeconomics vs. Macroeconomics: Which Is More Useful for Investment?

    Find out why investors are better off ignoring macroeconomic forecasts, and should instead focus on the lessons that microeconomics can teach them.
  2. Insights

    Microeconomics

    This tutorial teaches the basics of one of the most important economic topics. A must for all investors.
  3. Insights

    Introduction to Supply and Demand

    Learn about one of the most fundamental concepts of economics - supply and demand - and how it relates to your daily purchases.
RELATED TERMS
  1. Macroeconomics

    Macroeconomics is the study of how the aggregate economy behaves. ...
  2. Microeconomic Pricing Model

    A microeconomic pricing model is a model of the way prices are ...
  3. Fundamentals

    Fundamentals consist of the basic qualitative and quantitative ...
  4. Marginal Analysis

    Marginal analysis is an examination of the additional benefits ...
  5. Specialization

    Specialization is a method of production whereby an entity focuses ...
  6. Mechanism Design

    Mechanism design is a branch of microeconomics that explores ...
Trading Center