Updated November 4, 2020

What Is Microeconomics?

Microeconomics is a social science that examines the allocation of resources to produce goods and services, and the distribution of goods and services produced.

In the modern era, this involves the study of markets and the consumers and suppliers who trade in them. Microeconomics looks at how and why different resources have different costs, and how people create more effective or more productive choices. 

How Microeconomics Works

Modern microeconomics concentrates on how consumers and producers make choices to maximize their financial well being.

The income and resources available to them are a major factor in these choices. Economists collect and observe economic data from markets. They compare their assumptions, based on past data, to the actual results of the market.

Microeconomics Example

Microeconomics is a broad study of markets, resources, and trade. An example might be a study of how a producer prices a product or how a household spends its monthly income

Microeconomics vs. Macroeconomics

Microeconomics studies the choices of individuals and individual firms, whereas macroeconomics studies national economic policies that involve employment, inflation, and gross domestic product.

The Importance of Microeconomics 

Think of the study of microeconomics as a peek into the “why” of the market. Microeconomics helps us to understand the market economy and how it determines prices, the use of resources, and the distribution of goods.

Microeconomic theories help inform our choices as participants in a market economy.

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Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years creating professional financial certification exams and another 20 years of college-level teaching.

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