Microeconomics

Microeconomics is a branch of economics that studies how individuals, households and businesses make decisions about how to use and distribute resources. By studying the mechanisms behind how these decisions are made, microeconomics enables us to understand concepts such as how prices are determined, what factors impact our decision to purchase goods, and how businesses can allocate their resources to increase efficiency.²

The study of microeconomics takes a bottom-up approach by examining how economic decisions are made at an individual level, in contrast to macroeconomics, which focuses on large-scale economic activity such as economic growth, employment and government policies.³ One of the main themes that microeconomics revolves around is the concept of supply and demand. The law of supply and demand explains the relationship between the price of a good or service, and the willingness of people to buy or sell it.⁴ Generally speaking, if the price of a good/service increases, then businesses would be willing to supply more of it, whereas buyers would demand less of it. The opposite is true too, such that when the price decreases, suppliers would be less willing to supply and buyers would be more willing to buy. Together, supply and demand interact to determine the market equilibrium, which is the optimal price where the quantity demanded by buyers is equal to quantity supplied by producers.⁴

We constantly see concepts such as supply and demand in our daily lives, even though we may not be consciously aware that they are the building blocks of microeconomics. For example, if a clothing store has too many winter jackets because customers are not buying them, they may decide to offer a discount on the winter jackets, which may then increase consumer demand and therefore solve the problem of the excess supply. By understanding microeconomic concepts and mechanisms, economists can predict how individuals and businesses will behave in response to changes in prices, resources, or incentives.²