Microeconomics studies economic activity based on individual behaviors.
Microeconomics is the analysis of economic activity based on individual behavior . It is a concept developed in contrast to the notion of macroeconomics , which studies the economy of a country as a unit or a totality in which multiple factors interact.
The term comes etymologically from Greek. Specifically, this origin is the union of two words: micro which means "small" and oikoeconomia which can be translated as "household administration" .
Microeconomics studies
It should be noted that economics is a social science that focuses on the analysis of the processes of generation, marketing and consumption of services and products . This discipline provides knowledge that allows scarce resources to be managed to satisfy the needs (which are infinite) of people.
Macroeconomics, based on variables such as the level of employment or national income , studies the total amount of goods and services produced in a certain region. This economic branch, therefore, is used as an instrument of political management for the allocation of resources that promote development .
In the case of microeconomics, the focus of interest is on individual agents such as consumers , workers or companies. Microeconomics maintains that individual decisions are made in pursuit of the fulfillment of certain objectives. Consumers, for example, try to obtain the greatest possible satisfaction with their purchases and at the lowest possible cost.
Various activities explain the functioning of microeconomics.
Different theories
More precisely, we can establish that there are several theories that are used within microeconomics to undertake the development of its different applications and their corresponding indicators.
Among those would be, for example, the theory of the consumer thanks to which what is achieved is, based on the individual preferences of the consumer and the goods that are offered, to anticipate the choice that the consumer is going to make.
Another of the important pillars of microeconomics is the theory of the producer , which is based on the fact that what companies are dedicated to is controlling the production task to give rise to products that are effective and that allow them to increase their own benefits.
Likewise, we cannot ignore the well-known theory of financial asset markets , which makes it clear that currently we find four market structures that are decisive in the field of economics. Specifically, these are monopoly , oligopoly , perfect competition and monopolistic competition.
The theory of general equilibrium and rational choice are others that serve as fundamental keys within microeconomics.
Microeconomics and the law of supply and demand
A model that explains how prices are established in a free market is known as the law of supply and demand . The logic of supply indicates that, at a higher price of a good, more units will be offered. Demand , on the other hand, is greater when the price is lower.
If the price of a product is too high, consumers will not be willing to pay for it and there will be a tendency for the price to fall to encourage sales. When prices are very low, on the other hand, consumers purchase more and there may be a shortage of products (which is solved by an increase in prices, until a new equilibrium point is reached).