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microeconomics

Definition

Microeconomics is the branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. It examines how these behaviors affect the supply and demand for goods and services, which determines prices.

Analogy

Imagine a bustling farmer's market where each stall owner decides what price to set for their produce based on how many people want to buy it and how much they have to sell. Similarly, microeconomics looks at how individual decisions (like each stall owner's pricing strategy) shape the economy on a smaller scale, affecting prices, production, and consumption.

Related terms

Demand: The desire and ability of consumers to purchase goods or services at a given price.

Supply: The total amount of a good or service that is available for purchase by consumers at a given price.

Market Equilibrium: A situation in which market supply equals market demand, resulting in stable prices that won't change until some external factor alters supply or demand