Microeconomics/Definition

What is Microeconomics?

Microeconomics is how people deal with money, time, and resources. Microeconomics deals with the individual aspect of it while macroeconomics deals with aggregates at the level of an entire economy (e.g. total demand or total supply of goods in the national economy). Microeconomics deals with the economic interactions of a specific person, a single entity or a company. These interactions, which mainly are buying and selling goods, occur in markets. In other words Microeconomics is the study of individual market. For instance an economist may study the market for compact discs, the firms that sell compact discs and any other groups that influence the price and availability of compact discs, such as the government.

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).

There are two main concepts that we need to understand in Microeconomics that form the basis of not only Microeconomics, but all economic theory. The concepts are supply and demand, and scarcity. With just these two concepts, we can understand almost all human economic behavior. Or Microeconomics is 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.