Microeconomics Basics

Microeconomics focuses on the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. It studies individual markets, sectors, or industries. Macroecnomics, on the other hand, focuses on the sum total of economic activity, dealing with issues of growth, inflation, and unemployment—and with national policies relating to these issues.

One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. It achieves this by showing conditions under which free markets lead to desirable allocations and by analyzing market failure, where markets fail to produce efficient results.

Microeconomics deals with the effects of economic policies, such as changing taxation levels, on microeconomic behavior and thus on the aspects of the economy such as growth, inflation, and unemployment.

<p>The Lucas critique refers to the argument that the relationship between economic policy and outcomes may change when the policy changes. Modern macroeconomic theories have been built upon microfoundations in response to the Lucas critique, i.e., based upon basic assumptions about micro-level behavior.</p> Signup and view all the answers

<p>Microeconomics focuses on individual markets, sectors, or industries, while macroeconomics focuses on the sum total of economic activity.</p> Signup and view all the answers

<p>Jules Dupuit</p> Signup and view all the answers

<p>The sum of consumer and producer surplus known as social surplus or total surplus</p> Signup and view all the answers

<p>The monetary gain obtained by consumers from purchasing a product at a price less than the highest price they would be willing to pay</p> Signup and view all the answers

<p>The amount that producers benefit by selling at a market price higher than the least they would be willing to sell for</p> Signup and view all the answers

<p>Deadweight loss</p> Signup and view all the answers