Microeconomics

Microeconomics zooms in on the small parts of the economy. It asks questions such as: how do consumers decide what to buy? How do companies decide how much to produce and what price to charge? How are wages set in a particular industry?

Key microeconomic ideas include supply and demand, which explain how prices are set; elasticity, which measures how strongly buyers and sellers respond to price changes; costs and production, which explain how businesses decide output; and market structures, such as competition and monopoly, which affect prices and choice.

For example, microeconomics can explain why the price of strawberries falls in summer when supply is plentiful, or why a company with no competitors can charge higher prices than one facing many rivals.

Microeconomics also studies situations where markets do not work well on their own, such as pollution or public goods, and how government policies such as taxes, subsidies and regulations affect individual markets.