Microeconomics
Microeconomics is the branch of economics that studies the behavior of individual economic agents such as households, firms, and markets. It focuses on the mechanisms of supply and demand, price formation, resource allocation, and decision-making under constraints. Microeconomics provides foundational insights for understanding market outcomes, consumer behavior, production efficiency, and welfare economics.
Overview of Microeconomics
Microeconomics examines how individual agents make choices based on preferences, budget constraints, and incentives, and how these choices aggregate to market outcomes.
Consumer Behavior and Utility Theory
Consumers aim to maximize utility subject to income constraints, choosing combinations of goods and services based on preferences and prices.
Theory of the Firm and Production
Firms seek to maximize profits by optimizing production decisions, analyzing costs, outputs, and technology.
Supply and Demand Analysis
The interaction of supply and demand determines prices and quantities traded in markets, leading to market equilibrium.
Market Structures
Markets can range from perfect competition to monopoly, oligopoly, and monopolistic competition, each with distinct pricing and output characteristics.
Price Elasticity and Responsiveness
Elasticity measures the sensitivity of quantity demanded or supplied to changes in price, income, or other factors.
Market Failures and Externalities
Situations where markets fail to allocate resources efficiently include public goods, externalities, and information asymmetry.
Welfare Economics and Efficiency
Microeconomics assesses the welfare implications of market outcomes, evaluating allocative efficiency and potential policy interventions.
Decision-Making Under Uncertainty
Agents often face uncertainty and risk, employing expected utility theory and other models to guide choices.
Applications in Finance and Policy
Microeconomic principles underpin financial decision-making, market design, regulatory policy, and behavioral economics.