What does "microeconomics" mean?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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There are two general areas of economics.  One is macroeconomics while the other is microeconomics.  The difference between the two subfields is in the aspects of the economy that they study.  Macroeconomics studies economies as whole entities.  By contrast, microeconomics studies smaller parts of the economy.

Microeconomics is the study of small parts of the economy.  This can be anything from the decisions of individual consumers to the economics of a major industry such as the oil industry.  The point simply is that microeconomics looks at individual components of the economy while macroeconomics looks at the entire economy of the world, a country, or a region.

Let us look at a few examples to understand the difference.  Of course, if we ask what will happen to the unemployment rate in the US, that is a macroeconomic question.  By contrast, if we ask what will happen to employment in the oil industry in the US, that is a microeconomic question.  But let us look at two less obvious examples.  Let us say we want to ask what will happen to the price of oil if unemployment rises in the country as a whole.  This is a microeconomic question because what we are interested in is the forces that drive oil prices.  By contrast, if we ask what impact oil prices will have on US GDP, we are looking at macroeconomics because we are looking at factors that drive economic performance for the whole economy.