What is Microeconomics?

Microeconomics is a branch of economics that focuses on individual companies. There is another branch of economics called macroeconomics, and that focuses on the big picture of economics and studies things like inflation and unemployment. Remember that microeconomics is concerned with the little picture of economics and how economic climates affect individuals and companies. Microeconomics is the study of economic policies’ effects.

When a government enacts a tax increase or decrease, microeconomics studies how that tax increase or decrease directly affects individuals and companies. Microeconomics is also the study of how prices are established and how different factors of a market work together to establish a price. Individuals have to pay those prices that are established by the market, and companies have to pay those market prices as well. It’s important to remember that most companies are consumers as well as producers.

Microeconomics is also the study of market failure and perfect competition. Market failure is when the economy fails to do its primary task: to allocate goods and services effectively. When those goods and services are not allocated effectively, individuals cannot receive them, companies cannot receive them, and companies have trouble selling their goods and services to consumers. Perfect competition is when there are many producers producing pretty much the same product.

There is competition between the different producers as each tries to provide a lower cost product at a better quality than the other companies so buyers will buy their product. This is very good for individuals and companies when they’re trying to purchase products and services. That’s a brief look at microeconomics. Remember, it’s focused on the little picture of economics, and it’s concerned with individuals and companies and how the economic climate affects them.



by Mometrix Test Preparation | Last Updated: January 14, 2021