Microeconomics is a branch of economics and considered a social science as it studies individual human action, and how their decisions affect the allocation of scarce resources. It aims to show three things; how and why different goods have different values, how individuals make more efficient decisions, and how individuals cooperate with one another.
Microeconomics is concerned with individuals’ choices and when the factors of production change. These individuals are broken down into microeconomic subgroups, such as buyers, sellers and business owners. They interact with the supply and demand for resources, using interest rates and currency as a pricing system for coordination.
It doesn’t try to explain what should happen in a market; instead, microeconomics explains what to expect if conditions in the market change. For example, if a manufacturer raises the price of cars, microeconomics will say that consumers will buy fewer cars, and if oil reserves were to become scarce, the price of oil would rise. Quite simple really...
It can help investors see why a certain company’s stock prices might fall if consumers buy fewer of their products or services they have to offer. Microeconomics could also be used to help understand why an increased minimum wage could lead to a lower employment rate.
The modern microeconomic study is performed according to general equilibrium theory, which attempts to represent human behaviour through quantitative methods, allowing economists to identify a testable model of individual markets.
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