microeconomics | Britannica

microeconomics, branch of economics that studies the behaviour of individual consumers and firms. Unlike macroeconomics, which attempts to understand how ... microeconomics Sections Article Introduction FastFacts RelatedContent AdditionalInfo MoreArticlesOnThisTopic Contributors ArticleHistory Home Politics,Law&Government Economics&EconomicSystems microeconomics Print Cite verifiedCite Whileeveryefforthasbeenmadetofollowcitationstylerules,theremaybesomediscrepancies. Pleaserefertotheappropriatestylemanualorothersourcesifyouhaveanyquestions. SelectCitationStyle MLA APA ChicagoManualofStyle CopyCitation Share Share Sharetosocialmedia Facebook Twitter URL https://www.britannica.com/topic/microeconomics More GiveFeedback ExternalWebsites Feedback Corrections?Updates?Omissions?Letusknowifyouhavesuggestionstoimprovethisarticle(requireslogin). FeedbackType Selectatype(Required) FactualCorrection Spelling/GrammarCorrection LinkCorrection AdditionalInformation Other YourFeedback SubmitFeedback Thankyouforyourfeedback Oureditorswillreviewwhatyou’vesubmittedanddeterminewhethertorevisethearticle. JoinBritannica'sPublishingPartnerProgramandourcommunityofexpertstogainaglobalaudienceforyourwork! ExternalWebsites TheLibraryofEconomicsandLiberty-Microeconomics By PeterBondarenko | ViewEditHistory KeyPeople: FrankHynemanKnight RagnarFrisch ...(Showmore) RelatedTopics: economics ...(Showmore) Seeallrelatedcontent→ microeconomics,branchofeconomicsthatstudiesthebehaviourofindividualconsumersandfirms.Unlikemacroeconomics,whichattemptstounderstandhowthecollectivebehaviourofindividualagentsshapesaggregateeconomicoutcomes,microeconomicsfocusesonthedetailedstudyoftheagentsthemselves,byusingrigorousmathematicaltechniquestobetterdescribeandunderstandthedecision-makingmechanismsinvolved.Thebranchofmicroeconomicsthatdealswithhouseholdbehaviouriscalledconsumertheory.Consumertheoryisbuiltontheconceptofutility:theeconomicmeasureofhappiness,whichincreasesasconsumptionofcertaingoodsincreases.Whatconsumerswanttoconsumeiscapturedbytheirutilityfunction,whichmeasuresthehappinessderivedfromconsumingasetofgoods.Consumers,however,arealsoboundbyabudgetconstraint,whichlimitsthenumberorkindsofgoodsandservicestheycanpurchase.Theconsumersaremodeledasutilitymaximizers:theywilltrytopurchasetheoptimalnumberofgoodsthatmaximizestheirutility,giventheirbudget. ReadMoreonThisTopic economics:Microeconomics SinceKeynes,economictheoryhasbeenoftwokinds:macroeconomics(studyofthedeterminantsofnationalincome)andtraditionalmicroeconomics,... Thebranchofmicroeconomicsthatdealswithfirmbehaviouriscalledproducertheory.Producertheoryviewsfirmsasentitiesthatturninputs—suchascapital,land,andlabour—intooutputbyusingacertainleveloftechnology.Inputpricesandavailability,aswellasthelevelofproductiontechnology,bindfirmstoacertainproductioncapacity.Thegoalofthefirmistoproducetheamountofoutputthatmaximizesitsprofits,subjecttoitsinputandtechnologyconstraints.Consumersandfirmsinteractwitheachotheracrossseveralmarkets.Onesuchmarketisthegoodsmarket,inwhichfirmsmakeupthesupplysideandconsumerswhobuytheirproductsmakeupthedemandside.Differentgoodsmarketstructuresrequiremicroeconomiststoadoptdifferentmodelingstrategies.Forexample,afirmoperatingasamonopolywillfacedifferentconstraintsthanafirmoperatingwithmanycompetitorsinacompetitivemarket.Themicroeconomistmustthereforetakethestructureofthegoodsmarketintoaccountwhendescribingafirm’sbehaviour.Microeconomistsconstantlystrivetoimprovetheaccuracyoftheirmodelsofconsumerandfirmbehaviour.Ontheconsumerside,theireffortsincluderigorousmathematicalmodelingofutilitythatincorporatesaltruism,habitformation,andotherbehavioralinfluencesondecisionmaking.Behavioraleconomicsisafieldwithinmicroeconomicsthatcrossesinterdisciplinaryboundariestostudythepsychological,social,andcognitiveaspectsofindividualdecisionmakingbyusingsophisticatedmathematicalmodelsandnaturalexperiments.Ontheproducerside,industrialorganizationhasgrownintoafieldwithinmicroeconomicsthatfocusesonthedetailedstudyofthestructureoffirmsandhowtheyoperateindifferentmarkets.Laboureconomics,anotherfieldofmicroeconomics,studiestheinteractionsofworkersandfirmsinthelabourmarket. PeterBondarenko