What Is Microeconomics?

Microeconomics is the part of economic theory that deals with individual decision making.

Microeconomics is the study of how households and firms make choices, how they interact in markets and how the government attempts to influence their choices.

Microeconomic issues include explaining how consumers Opens in new window react to changes in product prices and how firms decide what prices to charge.

It looks into consumer behavior, production decisions, price setting, resource allocation and the theory of the firm.

Microeconomics asks why particular decisions are made and tries to explain how the entire economy knits together, looking at the incentives Opens in new window, options and contributions of individuals acting both on their own and collectively within the economy.

Microeconomics also involves policy issues, such as analyzing the most efficient way to reduce teenage smoking, analyzing the costs and benefits of approving the sale of a new prescription drug and analyzing the most efficient way to reduce air pollution.

We can conclude that microeconomics is concerned with analyzing the behavior of individual consumers and producers and how households and firms make decisions.

An important part of this analysis is concerned with how prices are set, and alter over time.