What is a example of microeconomics?

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Examples of microeconomics, which concerns economics at an individual scale, include personal budgeting strategies, purchasing decisions, and considerations of income and debt. 

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The field of economics can be broken down into two main branches: macroeconomics and microeconomics. While macroeconomics studies the economy from a large scale perspective, such as on a city, county, or national level, microeconomics studies the economy at an individual level.

A basic definition of microeconomics is the study of how an individual, whether it is a single person or business, decides how to allocate resources, and the interaction that occurs between those individuals or businesses. Microeconomics is more about single factors and the impact that individual decisions have than broad, sweeping economic policy. Some examples of microeconomics include supply, demand, competition, and the prices of items.

A real-life example of microeconomics would be how a young couple plans a budget for purchasing their first home. The two people come together as a single unit to look at their finances and come up with a plan to save enough money for a down payment, as well as a plan for how large of a house they will be able to realistically afford. They look at their combined income and determine where to allocate their funds based on their needs, such as current bills and debts, and their wants, such as dining out or shopping.

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A major component of the definition of microeconomics is the word "individual." The emphasis is on the singular and/or small scale. "Individual" might make someone think of a single person, and that would fall under the category of microeconomics.

An example would be the budget that a high school students sets for themselves. That student has various sources of income types and expenses. Managing those incomes and expenses is microeconomics, since microeconomics deals with the financial choices that individuals make and what factors affect and influence those choices. Those choices involve decisions about using, distributing, and managing scarce resources; therefore, issues of supply and demand enter into an individual's microeconomic system whether that person realizes it or not.

The category of microeconomics is also broad enough to cover individual families and even individual businesses. As the "individual" is broadened, the microeconomic system gets more complex and will switch over to macroeconomics once the subject is the overall economy of a city or country.

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An example of microeconomics—the study of how individuals or individual businesses allocate resources—could be the way in which a family plans for a vacation to Disney World. Whereas macroeconomics, as the name (“macro,” meaning "large-scale") suggests, is the study of how nations or blocs of nations or industrial sectors function regarding economics, microeconomics is focused solely on small units, like individuals. When a family sits down to plan an expensive vacation, it knows it should determine how much money it will have to allocate for that purpose, and whether the money exists now, will exist in savings by the time of trip, or will have to be borrowed. The family has to consider what, if any, sacrifices it must make to be able to afford the trip, such as cutting back on purchases of toys, or a new car, or groceries and clothes. In other words, microeconomics involves consideration of trade-offs. It assumes finite resources and a requirement to decide among competing priorities.

Another example of microeconomics could be the consideration by the owner of a small business of whether to expand that business by investing in new equipment or a larger building. The business owner needs to consider the size and nature of the market for his or her goods or services and whether an investment, usually involving a loan from a financial institution (in the case of larger publicly-traded companies, the money could come from the issuance of shares in the company), will be required. Whether the investment in recapitalization or expansion will be financially viable is at the core of the business owner’s thought process.

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There are two branches of economics, microeconomics and macroeconomics. Macroeconomics looks at how the economy, as a whole, works. For instance, it can study the Gross Domestic Product (GDP) of a country, and how it is influenced by unemployment levels or changes in price levels. Microeconomics, on the other hand, looks at the behavior of small economic units, within the larger economy. It studies how individuals and firms interact and make decisions on how the scarce resources can be allocated. As stated by Investopedia in the attached link, “microeconomics uses a bottoms-up approach to studying the economy, while macroeconomics uses a top-down approach." Microeconomics deals with topics such as the demand and supply of goods and services, the structure of the market, game theory, and money prices.

Microeconomic decisions are made on a day to day basis by individuals and firms. This is because all people face the problem of scarce or limited resources. The following are some examples of microeconomic decisions.

Consumer choices: Decisions are made on which goods or services offer a consumer the most satisfaction. For instance, should one purchase the flat leather shoes or the Adidas sneakers; should one rent the small apartment instead of the big apartment? What are the opportunity costs of making these decisions?

Management choices: A decision on how much to produce as a firm is a microeconomic decision. Others examples: decisions on how much stock to keep, where to purchase stock from, etc.

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