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Microeconomics

Not to be confused with macroeconomics.

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Microeconomics analyzes the market mechanisms that enable buyers and sellers to establish relative prices among goods and services. Shown is a marketplace in Delhi.

Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.[1][2][3] Microeconomics focuses on the study of individual markets, sectors, or industries as opposed to the national economy as a whole, which is studied in macroeconomics.

One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses[citation needed]. Microeconomics shows conditions under which free markets lead to desirable allocations. It also analyzes market failure, where markets fail to produce efficient results.[4]

While microeconomics focuses on firms and individuals, macroeconomics focuses on the sum total of economic activity, dealing with the issues of growth, inflation, and unemployment—and with national policies relating to these issues.[2] Microeconomics also deals with the effects of economic policies (such as changing taxation levels) on microeconomic behavior and thus on the aforementioned aspects of the economy.[5] Particularly in the wake of the Lucas critique, much of modern macroeconomic theories has been built upon microfoundations—i.e., based upon basic assumptions about micro-level behavior.

  1. ^ Marchant, Mary A.; Snell, William M. "Macroeconomics and International Policy Terms" (PDF). University of Kentucky. Archived (PDF) from the original on 2007-03-18. Retrieved 2007-05-04.
  2. ^ a b "Economics Glossary". Monroe County Women's Disability Network. Archived from the original on 2008-02-04. Retrieved 2008-02-22.
  3. ^ "Social Studies Standards Glossary". New Mexico Public Education Department. Archived from the original on 2007-08-08. Retrieved 2008-02-22.
  4. ^ Salanié, Bernard (2000). Microeconomics of Market Failures (1st ed.). Cambridge: MIT Press. ISBN 9780262528566.
  5. ^ "Glossary". ECON100. Archived from the original on 2006-04-11. Retrieved 2008-02-22.