Definition: Microeconomics is a subfield of economics which focuses on analysing the behaviour of economic agents within an economy so as to make decisions concerning the allocation of limited resources which have multiple uses.

As the name suggests, it is the microscopic view of the economy, wherein the economic activity of small individual units and their decisions related to production, exchange, distribution and consumption are studied so as to know how prices and quantities of goods and wage rate of the workers are determined.

These small individual units, i.e. person, household, firm, industry, government, etc. when taken together, make up the entire economy. functioning of economy

Nevertheless, to be specific, the primary focus of microeconomics is on the determination of the price of goods and services in an economy by optimizing the behaviour of individual, firm and household. As well as it explains the conditions for optimally allocating the resources, with which maximum satisfaction, output and social welfare can be derived. It determines:

  • How an individual spends his/her income?
  • How much to spend on a particular good or service?
  • How household make their budget and spend their income?
  • What set of commodities will best fulfil their needs and wants with the limited money they have to incur?
  • How does an individual make a decision regarding what amount to save for the future?
  • What kind of products and how many of each product is to be produced and offered for sale by the firm?
  • What price is to be charged by the firm from consumers for the products and services?
  • How many workers are to be employed?
  • What sources of finance are to be used to fund the business?
  • At what circumstances the firm choose to expand, downsize or windup the business?

All these questions are answered with the help of the study of microeconomics.

Microeconomics discusses the choices made by the people in an economy and the factors which influence those choices. Further, it studies, how the decisions of the economic agents regulate the utilization and distribution of scarce resources and how these decisions influences the demand and supply of the commodity, which determines its price.

Subject Matter of Microeconomics

There are some theories which are mainly studied in microeconomics, these are:

  1. Consumer Behavior
  2. Product Pricing
  3. Factor Pricing
  4. Production and Costs
  5. Demand
  6. Supply
  7. Location of Industry
  8. Behaviour of Firms
  9. Economic condition of people of the economy.
  10. Market Equilibrium
  11. Market Structure
  12. Non-Competitive Market

In finer terms, microeconomics provides a system under which the behaviour pattern of economic agents and their interrelationship is analysed, as well as their behaviour concerning the production, distribution and consumption of goods and services, can be forecasted.

The primary aim of the microeconomic analysis is reaching the state of equilibrium, from the perspective of individual economic units.


  1. Houd Reply

    My Great thanks to the one who created this article, it helped me so much Allah will pay you greater things in this world and letter day, it is a wonderful work

Leave a Reply

Your email address will not be published. Required fields are marked *