What is microeconomics?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Microeconomics is one of the two main branches of economics.  Microeconomics, as the name suggests, focuses on the smaller picture.  Macroeconomics looks at the performance of entire national economies.  By contrast, microeconomics looks at the behavior of individual companies, of households, and of industries, but not at the overall economy.  As the link below says, microeconomics is the study of “the trees” while macroeconomics is the study of “the forest.”

In microeconomics, we do not ask questions about the overall economy.  We do not ask, for example, what factors will cause unemployment to drop or inflation to rise in the United States’ economy.  Instead, we ask questions about the smaller picture.  We ask how firms determine the correct price to charge for a product.  We ask whether an increase in the tax on cigarettes will cause people to smoke less.  We ask these sorts of questions that focus on specific areas of the economy, not on the overall economy as a whole.

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