2. MICROECONOMICS IS A BRANCH OF MAINSTREAM 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.
MICROECONOMICS FOCUSES ON THE STUDY OF INDIVIDUAL
MARKETS, SECTORS, OR INDUSTRIES AS OPPOSED TO THE
NATIONAL ECONOMY AS WHOLE, WHICH IS STUDIED
IN MACROECONOMICS.
• Deals with the behaviors of individual economic units. These units include
consumers, workers, investors, owners of land, business firms, infant, any individual
or entity that plays a role in the function of our economy
3. THE WORD MICROECONOMICS DERIVES FROM THE GREEK WORD
'MIKROS'(SMALL, MINOR). MICROECONOMIC STUDY HISTORICALLY
HAS BEEN PERFORMED ACCORDING TO GENERAL EQUILIBRIUM
THEORY, DEVELOPED BY LÉON WALRAS IN ELEMENTS OF PURE
ECONOMICS (1874) AND PARTIAL EQUILIBRIUM THEORY,
INTRODUCED BY ALFRED MARSHALL IN PRINCIPLES OF
ECONOMICS (1890).
Microeconomic theory typically begins with the study of a single rational and utility
maximizing individual. To economists, rationality means an individual possesses
stable preferences that are both complete and transitive.
4. MICROECONOMICS EXPLAINS HOW AND WHY THESE UNITS MAKE
ECONOMIC DECISIONS. FOR EXAMPLE, IT EXPLAINS HOW
CONSUMERS MAKE PURCHASING DECISION AND HOW THEIR
CHOICES ARE AFFECTED BY CHANGING PRICES AND INCOME
• It also explains how firms decide how many workers to hire and how workers decide
where to work and how much work to do.
• Another important concern of microeconomics is how economic units interact to form
large units-markets and industries.
5. BY STUDYING THE BEHAVIOR AND INTERACTION OF
INDIVIDUAL FIRM AND CONSUMERS, MICROECONOMICS
REVEAL HOW INDUSTRIES AND MARKETS OPERATE AND
EVOLVE, WHY THEY DIFFER FROM ONE ANOTHER, AND HOW
THEY ARE AFFECTED BY GOVERNMENT POLICIES AND GLOBAL
ECONOMIC CONDITIONS
Various Microeconomic theories
Consumer demand theory
Production theory
Cost-of-production theory of value
Opportunity cost theory
Price Theory
