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Microeconomics is a special field of economics study that focuses on how divergence in the value of different goods is brought by individual human actions and economic behaviors. This branch of economics focuses on how decisions made by individuals, households or a company affect the value of goods and services. Economic behaviors exhibited by individuals, households or firms have several implications, raging form how a product is perceived, the scarcity of s product, how economic resources are distributed, among others. Also, when individuals and firms interact and cooperate with one another, the effects are also felt in the economy. These implications of decisions are studied by microeconomics.
A Little More on What is Microeconomics
At the base of microeconomics is the examination of how choices made by individuals cause significant changes in production, allocation, and distribution of resources. This includes how demand, supply, and prices of goods and services are affected by economic decisions made by firms, households, and individuals.
Microeconomics is different from macroeconomics give that the former deals with the decisions and behaviors of individuals and households while the latter focuses on the economic behavior of the whole population, it carries out an aggregate of the impacts of behaviors and decisions made in an economy. Microeconomics also examines the interaction between buyers, sellers and producers of goods in the market being the major players or participants in the demand, allocation, and distribution of resources.
The Uses of Microeconomics
Microeconomics is an important branch in economics, it has significant benefits that place it of higher value than macroeconomics in many cases. The uses of microeconomics are;
- Microeconomics gives insight into how certain conditions in the market are affected by economic behaviors and decisions of individuals, households, firms, and industries.
- It examines the impacts of human action on the prices of goods, demand, production, allocation, and distribution of the goods.
- Microeconomics forecasts certain trends that might occur in the market due to certain decisions or actions by individuals, firms or households involved.
- Investors and market analysts often draw market insights through microeconomics.
Method of Microeconomics
There are some core methods used in the microeconomic study, the general equilibrium theory and partial equilibrium theory are parts of these methods. Although these theories are categorized as the neoclassicist microeconomic theories, they are crucial methods for microeconomics study. As developed by Léon Walras in 1874, the general equilibrium theory focuses on using numerical values to represent and explain human behavior as they relate to the economy. Alfred Marshall’s partial equilibrium theory was also in the same direction.
Basic Concepts of Microeconomics
There are several key concepts in microeconomics, the most prominent ones include supply, demand, resources allocation, equilibrium, production, labor, and many others.
According to microeconomics, the economic behaviors, and decisions of individuals, households, firms, and industries affect the supply and demand of goods in the market. These economic behaviors can also result in an equilibrium which is a quality of a competitive market. When equilibrium occurs, it means the number of goods demanded is the same supplied and the amount buyers are willing to pay for a purchase is the same sellers want to sell their goods.
Production is another key concept in macroeconomics, this relates to how raw materials are converted into finished products or inputs into outputs. The resources that go into the production of goods, labor costs and others are also examined in relation to the impacts of economic behaviors of individuals and households.