Many candidates are confused about the difference between microeconomics and macroeconomics. They may wonder what is microeconomics.
Microeconomics is a branch of economics that deals with single factors and the effect of an individuals’ decision on the economy. It understands what will happen in the economy when individuals make choices in response to changes in incentives, prices, resources, and methods of production. Individual decision-makers are often categorized into various subgroups to make the study easier. Some examples of the subgroups include buyers, sellers, and business owners.
If you still wonder, “What is microeconomics and how is it connected to the economy?” then you must know that this branch of economics deals with individual decision-makers. The subject experts formulate various models based on logic and observed human behavior. Then they test those models in real-world situations.
Some famous concepts are:
- Incentives and behavior
This theory explains how firms and individuals react to different changes in the economy.
- Utility theory
Utility theory states that consumers gain maximum happiness by consuming a combination of different goods. However, their happiness or utility diminishes when they keep consuming the same products or goods for an extended period. As a result, they may stop their consumption. It is also known as the theory of diminishing marginal utility.
- Production theory
This theory focuses on converting the inputs into outputs. It focuses on minimizing costs and maximizing profits.
- Price theory
The supply and demand for a particular product decide its price in the competitive market.
All these theories are enough to understand what is microeconomics and how it deals with the effects of individual demand.