Roughly speaking, microeconomics deals with economic decisions made at a low, or micro, level as opposed to macroeconomics which approaches economics from a macro level.
This piece of the microeconomics puzzle was captured by The Economist's definition in the phrase "individual consumers, groups of consumers, or firms. Here is a better definition:. Microeconomic decisions by both small businesses and individuals are mainly motivated by cost and benefit considerations.
Costs can be either in terms of financial costs such as average fixed costs and total variable costs or they can be in terms of opportunity costs , which consider alternatives foregone. Microeconomics then considers patterns of supply and demand as dictated by the aggregate of individual decisions and the factors that influence these cost-benefit relationships.
Consumer Choice and Household Behavior 3. Production and Costs 4. Perfect Competition 5.
Principles of Microeconomics
Other Market Models 6. Resource Markets 7. Market Failures 8. International Trade 9. Evaluating Market Outcomes American Government Companion.
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ECON101: Principles of Microeconomics
We'll get back to you as soon as possible. These groups create the supply and demand for resources, using money and interest rates as a pricing mechanism for coordination. As a purely normative science, microeconomics does not try to explain what should happen in a market. Instead, microeconomics only explains what to expect if certain conditions change.
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If a manufacturer raises the prices of cars, 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.
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.
Microeconomics can address questions like these that might have very broad implications for the economy; however, questions about aggregate economic numbers remain the purview of macroeconomics , such as what might happen to the gross domestic product GDP of China in The Marshallian and Walrasian methods fall under the larger umbrella of neoclassical microeconomics. 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.
As logical positivists, neoclassicals believe in constructing measurable hypotheses about economic events, then using empirical evidence to see which hypotheses work best.
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