Microeconomics as an integral part of economic theory.
Microeconomics vs. Macroeconomics: What Is the Difference?
Since the 1930s, the discipline of economics has been divided into two broad areas, macroeconomics and microeconomics.
The main difference is that microeconomics studies how households and companies make decisions and how they interact with each other in various markets. While macroeconomics is the science of economic phenomena in general.
Let’s say a microeconomist investigates how foreign competitors affect the Italian auto industry. While a macroeconomist will be interested in ways to improve living standards in the country.
Microeconomics and macroeconomics study different problems, using completely different approaches to solving them, but nevertheless, these disciplines are closely related.
What Is Microeconomics: Definition
Microeconomics is a branch of economic theory that studies the activities of individual economic entities.
On the one hand, the science of microeconomics explains how decisions are made by individual economic entities. On the other hand, it studies the interaction of economic entities in the process of formation of industry markets.
What Does Microeconomics Study?
The subjects of study of microeconomics are economic categories, laws, principles, and models of efficient use of limited resources by subjects of microeconomics to achieve their maximum satisfaction of needs and interests, as well as to obtain benefits.
In addition, microeconomics studies the behavior and choice of economic agents in the process of production, distribution, exchange, and consumption of goods and services in conditions of limited resources.
What Topics Does Microeconomics Cover?
The main topics of microeconomics research are:
- relative prices, that is, the ratio of prices of individual goods (macroeconomics studies the absolute price level),
- production volumes,
- consumption of goods and services,
- state of individual markets,
- distribution of resources between different alternatives.
Theories, or What Problems Does It Solve
In addition, microeconomics answers the following questions:
- what to produce and in what volume (the theory of consumption);
- how to produce selected types of goods (the theory of production);
- to whom and what results the production will bring (the theory of consumption, the production theory, efficiency, general equilibrium, etc.);
- when certain goods and resources will be consumed;
- problems of investment activity;
- ecological problems;
- search for ways to improve production efficiency.
Microeconomics investigates and analyzes the behavior of individual economic units (agents) . These economic agents are:
- Households are an individual or a group of people who run a household together, receive and distribute income.
In the market of final goods and services, they act as buyers, and in the market of factors of production as sellers of labor.
2. Enterprises (firms) are entities that carry out activities to make a profit or income.
In the market of goods and services, they act as sellers, in the market of factors of production they act as buyers.
3. The government acts as a set of authorities that perform coordinating and regulatory functions in the economy.
The government’s main task is to improve the welfare of society by producing public goods (social protection, security, health care, etc.).
In addition to being a producer of public goods, the government is also a buyer of goods and services, a lender or borrower of funds, and a redistributor of national income (for example, through the tax system).
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