Microeconomics deals with the smaller components of the economy, particularly how markets and consumer behave. It is a branch of economics.
Microeconomics analyzes the relationship between the individual consumers and their respective behaviors.
This branch of economics focuses on the demand and supply patterns of a market along with how prices are determined and market structures.
For example, the study of microeconomics deals with the market structure of the oil industry. The oil industry of a particular nation follows a monopoly, duopoly or perfect competition. The price of oil, as well as the supply, may also be determined by the market structure.
Microeconomics vs. macroeconomics
Economics is a social science that deals with the allocation of scarce resources. Economics as a social science can be studied by breaking the subject into two componentsâ€”microeconomics and macroeconomics.
Microeconomics deals with the smaller entities and mainly is concerned with consumer behavior, demand and supply theories and pricing mechanisms. An individual or entity that wishes to open a business venture will benefit from studying this category of economics as it deals with how much output is needed to optimize profits, among others.
On the other hand, macroeconomics studies the bigger market or the national level of economics, hence the term macro.
The main focus of macroeconomics is the whole economy such as the economic output in terms of the gross domestic product, exchange rates, inflation, employment and unemployment and debt to GDP ratios.
For example, members of a treasury deal with the interest rates; they decide whether to adjust interest rates or not to avoid or maintain either a deflation or an inflation rate. Economists who study macroeconomics also determine the appropriate exchange rate regimes; whether a fixed foreign exchange or floating exchange rate is the ideal for the country.
A person who wants to go into the study of economics should have a good grasp of both micro and macroeconomics.