Microeconomics is an area that’s often mentioned within the realm of economics, but if you’re new to economics study, it may be difficult to understand exactly what microeconomics is.
In short, microeconomics is the study of the economy from the perspective of individuals or companies within an economy. Where macroeconomics, the other main field of economics study, is more concerned with the economy as a whole, students of microeconomics look at the economy from a bottom-up perspective.
In the long run, understanding what microeconomics is and what areas of economics it impacts, whether that's wages, monetary policy or fiscal measures, can really help you get ahead in all aspects and topics of your economics studies.
Understanding the Key Areas of Microeconomics
Naturally, there is plenty to examine when it comes to microeconomics. For example, things that fall within the remit of microeconomics include:
- The study of demand and supply curves and the outcome of such studies;
- Understanding the link between wage changes and corresponding patterns of employment; and
- Understanding the variable costs of producing goods and services.
A good example of microeconomics analysis in action would be how economists interpret a rise in the cost of particular goods or services. If, for example, home exercise bikes suddenly spiked in price, then microeconomics would suggest that consumer demand for that particular product is likely to fall.
As microeconomics, just like economics as a subject, is considered a social science, economists that study microeconomic trends and theories tend to create theoretical economic models and economic principles. These models try to describe what the economic behaviour to a particular event would likely be, under a particular set of circumstances.
As such, it’s often an area of best guess and assumptions, rather than concrete fact. Nevertheless, microeconomics remains a core area in any economics course and can be incredibly useful in providing insight into how economies operate at a base level.
Finding a Microeconomics Definition That Works For You
There are many economists, past and present, who have specialised in the study of microeconomics.
The study of microeconomics as a field has been around for a few hundred years. Indeed, some argue that the history of microeconomics and its associated economic theories actually extends further into the past, with links back to classical economists such as Adam Smith. Smith, for example, argued that there was an “invisible hand” in the economy and advocated for minimal government intervention, also known as a “laissez-faire” approach.
This idea that individuals and their actions have the power to self-regulate an economy as a result of their own economic activity certainly draws parallels to modern microeconomic theory and modern-day microeconomics was developed out of the neoclassical school of economic thought.
However, the core ideas behind the philosophy of microeconomic theory as we recognise it today can be traced back to the 19th century, with figures such as Alfred Marshall leading the way.
In his 1890 work, “Principles of Economics” Marshall introduced key concepts that are still recognised today, such as the price elasticity of demand. He also elaborated on concepts such as the demand curve and supply curve.
Although Marshall’s ideas were highly influential to the field of microeconomics, there have been further optimal developments to microeconomic theories over the years, with one of the major changes to the field being in the way that economists treat the notion of perfect competition.
The Concept of Perfect Competition and the Development of Microeconomics
In economics, perfect competition, also known as pure competition, is considered to be a market state that is, in essence, the exact opposite of a monopoly. This is because:
- There are a number of competing businesses that sell the same or a comparative product;
- Market prices are a true reflection of supply and demand; and
- Consumers have full information about the product and the prices that are charged for it and take such information under consideration when making purchasing decisions. Note that the opposite of this concept is asymmetric information.
It is not uncommon for microeconomic theories to be based on the assumption that there is perfect competition within a market. While this can lead to useful theories that can, at times, accurately predict market behaviour, there are also issues with such an assumption.
The main argument levied against such models is that, in reality, markets are not perfect, and do not always behave rationally. Examples of this imperfection or market failure and its implications can be easily found.
For instance, businesses often seek to differentiate themselves from competitors and use such differentiation as justification for charging a higher price for the same product. This can be seen in price differences between a supermarket’s own-brand “value” range for, say, a sandwich, compared to the price that is charged by more “premium” brands such as Marks and Spencer.
There is also some debate as to whether consumers really have perfect information about markets, which is a core assumption in many microeconomic theories.
The idea of information asymmetry has been around for some time and came to prominence during periods such as the 1970s, during which time economists such as George Akerlof and Joseph Stiglitz came to the fore.
Akerlof highlighted the issue in his famous 1970 work “The Market for Lemons.” Akerlof argued that consumers did not always have access to the same information as sellers, which puts buyers at a disadvantage.
This is because the seller often has more information and is likely to know the true value of a product. The buyer, on the other hand, may not have as much information, and so may not be able to tell whether the price of a product is reflective of its true value.
In his work, Akerlof considered the used car market, where poor quality cars are referred to as lemons. In short, he highlighted that a buyer for a used car may actually end up paying more for a “lemon” than they otherwise would. At the same time, sellers of good quality used cars are put at a disadvantage, as a buyer, worried about buying a “lemon” would not be prepared to pay the higher price that a good quality car should command.
Moreover, there have been recent developments in economic theory, with the advent of a field known as behavioural economics. Pioneered by figures such as Daniel Kahneman and Amos Tversky, behavioural economists argue that the concept of a rational economic agent is itself flawed, as people do not always behave rationally or predictably.
As such, microeconomics as a field continues to evolve, and with it, our understanding of how we behave and influence markets continues to grow.
Getting the Most Out of Your Microeconomics Revision
Some students may find that they’re naturally drawn to microeconomics, whilst others may prefer to study macroeconomic topics. Although the two disciplines within economics are very distinct, you don’t have to necessarily prefer one over the other.
Throughout your economics studies at school or university you’ll undoubtedly encounter both economics disciplines, and so getting to grips with both macro and microeconomics is a core skill to master.
As such, if you find yourself struggling to get your head around key topics within your syllabus in relation to microeconomics, it may be time to reach out for additional help. Not only will extra assistance help to cement core topics that you may currently have difficulties with, but it will also be invaluable when it comes to exam time.
This is because microeconomics tuition should not only help to improve your performance during the school or university year, but it should also give you a greater opportunity to get better grades when it comes to your final exams.
There are many different ways you might choose to improve your economics knowledge. You could opt to teach yourself certain aspects of the curriculum you’re unsure of. For instance, you could:
- Read blogs specialising in microeconomics to help broaden your knowledge base;
- Listen to economics podcasts, such as Freakonomics Radio; or
- Read daily news articles related to the economy, whether that be local or global economic news.
Alternatively, if you’d like to have someone else encourage you to study, then tutoring may be the way forward. Tutors, such as those available through Superprof, specialise in a range of subjects, from history, mathematics, statistics, to economics. As such, if you’re looking for an economics teacher that has experience teaching microeconomic topics, then Superprof should hold the answer for you.
What’s more, you can select how you would like your tuition delivered. So whether you’re looking for online tutoring sessions, private in-person tutoring, or tutoring with a small group of friends, you can find a format that suits you, at a reasonable price.
Find out more about international economics here.