Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Microeconomics is the social science that studies the implications of incentives and decisions, specifically about how those affect the utilization and distribution of resources.
Microeconomics shows how and why different goods have different values, how individuals and businesses conduct and benefit from efficient production and exchange, and how individuals best coordinate and cooperate with one another.
Generally speaking, microeconomics provides a more complete and detailed understanding than macroeconomics. Individual actors are often grouped into microeconomic subgroups, such as buyers, sellers , and business owners. These groups create the supply and demand for resources, using money and interest rates as a pricing mechanism for coordination.
Microeconomics can be applied in a positive or normative sense. Positive microeconomics describes economic behavior and explains what to expect if certain conditions change.
If a manufacturer raises the prices of cars, positive microeconomics says consumers will tend to buy fewer than before. If a major copper mine collapses in South America, the price of copper will tend to increase, because supply is restricted. Positive microeconomics could help an investor see why Apple Inc.
Microeconomics could also explain why a higher minimum wage might force The Wendy's Company to hire fewer workers. These explanations, conclusions, and predictions of positive microeconomics can then also be applied normatively to prescribe what people, businesses, and governments should do in order to the most valuable or beneficial patterns of production, exchange, and consumption among market participants.
This extension of the implications of microeconomcis from what is to what ought to be or what people ought to do also requires at least the implicit application of some sort of ethical or moral theory or principles, which usually means some form of utilitarianism. Neoclassical economics focuses on how consumers and producers make rational choices to maximize their economic well being, subject to the constraints of how much income and resources they have available.
Neoclassical economists make simplifying assumptions about markets—such as perfect knowledge, infinite numbers of buyers and sellers, homogeneous goods, or static variable relationships—in order to construct mathematical models of economic behavior. These methods attempt to represent human behavior in functional mathematical language, which allows economists to develop mathematically testable models of individual markets. Neoclassicals believe in constructing measurable hypotheses about economic events, then using empirical evidence to see which hypotheses work best.
Microeconomics applies a range of research methods, depending on the question being studied and the behaviors involved. Style: MLA. English Language Learners Definition of microeconomics. Get Word of the Day daily email! Test Your Vocabulary. Test your visual vocabulary with our question challenge! Love words? Need even more definitions?
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