micro economics

Microeconomics(from Greek prefixmikro-meaning "small" and economics) is a branch of economicsthat studies the behavior of individuals and small impacting organizations in making decisions on the allocation of limited resources (see scarcity). [ 1 ]Typically, it applies to marketswhere goodsor services are bought and sold. Microeconomics examines how these decisions and behaviors affect the supply and demandfor goods and services, which determines prices, and how prices, in turn, determine the quantity supplied and quantity demanded of goods and services. [ 2 ] [ 3 ] This is in contrast to macroeconomics, which involves the "sum total of economic activity, dealing with the issues of growth, inflation, and unemployment." [ 2 ]Microeconomics also deals with the effects of national economic policies (such as changing taxationlevels) on the aforementioned aspects of the economy. [ 4 ]Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon ' microfoundations'—i.e. based upon basic assumptions about micro-level behavior. One of the goals of microeconomics is to analyze market mechanisms that establish relative pricesamongst goods and services and allocation of limited resources amongst many alternative uses. Microeconomics analyzes market failure, where markets fail to produce efficientresults, and describes the theoretical conditions needed for perfect competition. Significant fields of study in microeconomics include general equilibrium, markets under asymmetric information, choice under uncertaintyand economic applications of game theory. Also considered is the elasticityof products within the market system. Assumptions and definitions The fundamentals of Microeconomics lies in the analysis of the preferencerelations. Preference relations are defined simply to be a set of different choices that an actor can choose (a k-cell metric space) that actors can also compare between any two bundles of choices ( completenessof the relationship.) In order to analyze the problem further, the assumption of transitivityis added to the mix. These two assumptions of completeness and transitivity that are imposed upon the preference relations are what is termed rationality. Microeconomic analysis are conducted mainly through imposition of additional constraints on the preference relations or even relaxation of the above stated assumptions (most often transitivity) although such relaxation makes the problem much harder to analyze.