Microeconomics

Definition

Microeconomics is the branch of economics that studies individual agents' behavior, such as households and firms, and their interactions in markets. It focuses on supply and demand, price formation, and resource allocation at a granular level.

5 Must Know Facts For Your Next Test

1. Microeconomics examines how individuals make decisions to allocate limited resources.
2. It involves the study of market structures like perfect competition, monopolies, and oligopolies.
3. The concepts of elasticity of demand and supply are crucial in microeconomics.
4. Price determination in microeconomics is influenced by factors such as production costs, consumer preferences, and competition.
5. Understanding microeconomics helps in analyzing the impact of government policies on individual markets.

Review Questions

• What role do households and firms play in microeconomic analysis?
• How does elasticity affect pricing strategies in a competitive market?
• Why is understanding market structures important in microeconomics?

Related terms

Elasticity:

A measure of how much the quantity demanded or supplied responds to changes in price.

Market Structure: The organizational characteristics of a market that influence the nature of competition and pricing.

Demand Curve:

A graph showing the relationship between the price of a good and the quantity demanded.