What is microeconomics?

We explain what microeconomics is and what are the branches into which it is divided. In addition, what is it for and its main aspirations.

  1. What is microeconomics?

Microeconomics is understood  as an economic approach that only contemplates the actions of economic agents , such as consumers , companies , workers and investors, or the specific markets of one product or another. In other words, it is an approach at the individual levels, not as a whole.

In the latter, microeconomics differs from macroeconomics , and its analysis focuses on the basic economic elements: goods, services, prices, markets and economic agents.

Branches of the macroeconomy

The microeconomic approach can be divided or structured into several branches, of which the following are the most important:

  • Consumer theory . This branch aims to understand the logic of consumption from the perspective of those who buy goods and services, that is, consumers: what choices do you make when choosing a product and why? What are your preferences and logic when consuming? How could its consumption be predicted?
  • Theory of demand . This branch of the microeconomics assumes the task of understanding the demand , that is, the desire to consume a specific good or service, or an entire sector of production, by consumers (some of which are, in their time, producers). This theory tries to address the economy from the elements that arouse or alter the demand for a product.
  • Theory of the producer . For this branch of microeconomics, any organization that plans, communicates and supervises production, that is, the conversion of productive factors into products that the consumer can buy, is a company, and therefore serves as a perspective to understand and try Predict the entire economic flow. How should a company handle its costs? How much should you produce and how can you maximize your profit?
  • General equilibrium theory . This branch attempts to provide a global explanation of the behavior of production and consumption, as well as the formation of prices in an economy that has one or several markets. To do this, it goes from the particular to the general ( bottom -up method  ), contrary to macroeconomics ( top- down ).
  • Theory of financial asset markets . Financial markets are a mechanism for the exchange of financial assets by economic agents, provided that the purpose of consumption is not the immediate use of the good, but the delay in consumption over time: the increase in capital , the transfer of risks, etc.

These subdisciplines cannot be considered as separate fields of study, since the events of one affect the others, especially that of general equilibrium. The task of the microeconomics is to offer possibilities of understanding the different market forces, such as mathematical models or other approaches that allow an approximation to the economy from its constituent elements.

Finally, the microeconomics  aims to model the market, which is equivalent to understanding its operating dynamics and proposing a structure , which can be of perfect competition (nonexistent, economic agents in perfect balance and free competition) or imperfect (economic agents affect more or less in the operation of the market to tip the balance in its favor).

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