Microeconomics Flashcards, test questions and answers

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What is Microeconomics?

Microeconomics is a branch of economics that studies the behavior of individuals, households, and firms in making decisions about the allocation of limited resources. It focuses on how these decisions affect prices, output and consumption of goods and services. Microeconomics examines how supply and demand interact to determine price levels. It also looks at how individual actors such as consumers, producers and firms interact with each other in markets to allocate resources efficiently. Microeconomics deals with the decision-making process of economic agents such as firms or households. This includes analyzing how they make choices concerning what goods or services to produce, buy or sell; what prices they will charge for those goods or services; and which production techniques they will use in order to maximize their profits or minimize their losses. Microeconomic theory typically starts from the assumption that agents have rational preferences among outcomes that can be identified and described by variables such as price, profit, utility and so forth. It then studies the implications when these preferences are taken into account in decisions made by economic actors interacting within any given market structure (such as perfect competition). Some important topics studied under microeconomics include elasticity of demand, production functions, costs curves (including marginal cost curves), market structure (including monopoly), game theory (which helps explain strategic behavior) , capital markets , risk analysis , externalities , public choice theory (which helps explain governmental decision-making) taxation policies. Microeconomic analysis can yield insights into many different types of policy issues such as environmental regulation, health care policy or education reform .