What is microeconomics?

Microeconomics is the most fundamental branch of economics, dealing with individual decision-making and market behavior. It addresses questions you may have pondered many times, such as:

• Why do prices of goods rise and fall?
• Why are some products always more expensive than others?
• How can I make better purchasing decisions?
• Why are some companies more competitive than others?

When you think about these questions, you’re actually stepping into the world of microeconomics—a field that explores how consumers and producers behave and interact within smaller markets. Understanding these concepts helps you grasp how prices are formed and what factors influence individuals’ economic decisions.

Definition of Microeconomics

Unlike macroeconomics, which focuses on broad national or global variables such as inflation or economic growth, microeconomics deals more with individual behavior and interactions within smaller markets. If you're on a path to learning economics, getting acquainted with microeconomics is a crucial starting point—and studying it can help you follow this journey with greater clarity.

Key Concepts in Microeconomics

Before diving into the key concepts of microeconomics, it's essential to become familiar with foundational principles and ideas that play a crucial role in the journey of learning economics. These basic concepts help you better analyze market behavior and individual decision-making, giving you a more comprehensive understanding of how prices are formed, how consumers make choices, and how producers operate.

Supply and Demand

At the heart of microeconomics lies the concept of the price mechanism, which refers to how prices are formed in the market. This mechanism operates based on two main forces:

• Demand: The willingness and ability of buyers to purchase goods
• Supply: The willingness and ability of sellers to offer goods

The price of each product is determined at the point of equilibrium between supply and demand.

Consumer Behavior

Why do individuals choose one product out of many options? How is their satisfaction—or "utility"—from the purchase measured? Microeconomics aims to model these behaviors. Concepts such as the Law of Diminishing Marginal Utility show that consuming more of a product doesn't necessarily lead to greater satisfaction; instead, satisfaction gradually decreases over time.

Producer Behavior and Costs

Producers must decide how much to produce, which combination of labor and capital to use, and how to optimize their costs. Concepts such as marginal cost and productivity become especially important in this context.

Types of Markets

Microeconomics also studies different market structures. From perfect competition to monopoly, each structure has its own set of rules. The table below shows various types of markets in economics and their key characteristics.

Everyday Examples of Microeconomics

Microeconomics helps us better understand the everyday phenomena happening around us. For example, airline ticket prices increase during holiday periods because travel demand rises, and airlines take this opportunity to adjust prices accordingly. Similarly, stores offer discounts to attract more customers, which is recognized as a marketing strategy.
Therefore, microeconomics attempts to model and analyze questions like the following, which reflect everyday examples:

• Why do airline ticket prices rise during holidays?
• Why do stores offer discounts?
• Why are some brands more expensive, even if the quality is similar?
• Why do some small businesses fail while others maintain monopolies?

Applications of Microeconomics

Microeconomics is not just theory—it’s a decision-making tool.
From urban policymakers to corporate managers, everyone needs an understanding of microeconomics to design better solutions. The applications of microeconomics can be summarized as follows:

• Urban planning and pricing of public services
• Determining wages and working conditions
• Analyzing market competition and designing business strategies
• Setting prices in situations of shortage or surplus

Suggested Study Path

To gain a deeper understanding of microeconomics, we recommend following this sequence:

1. What is Microeconomics?
2. How Do Supply and Demand Work?
3. An Article on Consumer Behavior
4. An Article on Market Structures
5. An Article on the Role of Pricing in Competition

Afterward, we will delve into macroeconomics, which helps analyze decision-making at the national level, including fiscal and monetary policies, as well as indicators such as inflation and unemployment.