Microeconomics A General Overview

Microeconomics is the study of the behavior of individuals, households and companies and how these affect the economic market, particularly how it affects supply of and demand for goods and how these in turn affect the manner in which goods are priced. Microeconomics is also used to analyze why markets fail.

The law of supply and demand is perhaps the most important concept that needs to be understood in microeconomics. This is directed related to the price of goods, which is basically the feedback that tells both the buyer and seller what kind if demand is present for a particular type of product. Looking at the consumer side of microeconomics and how it relates to the law of demand, the demand usually falls when prices are high, and demand goes up when prices are low. The law of supply, on the other hand, deals with the microeconomics of small business and entrepreneurs, which are the producers of goods. When the product can be sold at a higher price, this often results to more suppliers since a higher price can easily translate to more profit if production costs remain the same. A product whose price cannot be raised will not attract more providers. Thus, supply for this product usually remains low.

The study of microeconomics deals primarily with market failure, in which a market fails to organize production and product allocation to the consumers in an efficient manner. The major types of market failure are monopolies, externalities, public goods and information asymmetry.