Standing in contrast to macroeconomics, microeconomics looks at the choices made by economic actors - be they people, firms, or whole industries - and how they affect the allocation of scarce resources. Primarily, this involves investigation into why goods and services assume different values and understanding how changing economic conditions can alter the decision-making of economic actors.
At the core of microeconomics lies the assumption - an increasingly questioned one - that individuals are rational - as in, have stable preferences - and utility maximising in their behaviour. Built on this are the economic principles: opportunity cost, diminishing marginal utility, and supply and demand, which together make up microeconomics’ skeletal epistemological form.
Microeconomics vs Macroeconomics - Which Class Should I Take First?
When you're just beginning your studies in economics, you'll come across two very important subjects – microeconomics and macroeconomics. It's highly likely that you'll study both of these topics as you learn more about economics, as they are foundational to the subject. However, you might be in the position where you have to choose a class in economics to study now, before specialising later on – and in that case, should you take a class in microeconomics or macroeconomics first? Which will give you the best starting point for your studies in economics?
Consumer Surplus and Producer Surplus
Consumer surplus is the gain made by consumers when they purchase an item at the competitive market price rather than the (highest) price that they would have been willing to pay for it. Analogously, producer surplus is the gain made by producers when they sell an item at the market price rather than the (lowest) price that they would also have accepted for it.
When economists say “ceteris paribus” they are talking about the direct effect of X on Y while assuming that the rest of the world stands still. Ceteris is Latin for “other things” and paribus means “equal” so the literal translation is “other things being equal” but in economics it is generally understood to mean that all other things remain equal or constant (while dealing with the issue at hand).