What is (Micro) Economics?

Next Previous Up Top

I suggested the question, "What is economic analysis?", but in fact we will be concerned with micro economics, which is rather different from macroeconomics.

• Microeconomics studies decision-making and the interaction of decisions. The system may be open or closed.
  • "Open" refers to "partial equilibrium" analysis of single markets. Exogenous influences may play an important role.
  • "Closed" refers to "general equilibrium" analysis of all economic activity simultaneously. In principle, all outcomes are explained by the data of the model and economic principles.
  • Microeconomic models are disaggregated (individual behavior regarding particular goods is considered).
• Macroeconomics studies flows of goods and services in a closed system.
  • "Closed" refers to the absence of flows of goods, services, and information in to or out of the economy.
  • Macroeconomic models are aggregated (similar individuals and similar goods are grouped together and "added up"; in the limit getting the conventional Y = C + I + G kind of model of GDP).
• "Microfoundations of macroeconomics" studies how to build microeconomic models with realistic macroeconomic properties.

Next Previous Up Top