Microeconomics

Microeconomics studies how individuals and firms make choices and how those choices interact through markets. It explains prices, production, consumption, and the allocation of scarce resources.

Scarcity: A condition in which limited resources cannot satisfy every possible use. Scarcity makes choosing among competing uses the central problem microeconomics analyzes.
Utility maximization: The choice of a consumption bundle that gives a decision-maker the greatest attainable satisfaction. It describes how consumers allocate limited income among goods.
Perfect competition: A market structure with many buyers and sellers, homogeneous products, and free entry and exit. It provides the benchmark where individual firms cannot influence market price.
Externality: A cost or benefit of an activity that affects people outside the transaction producing it. External costs and benefits can make private choices diverge from social costs and gains.
Behavioral economics: The study of how psychological factors shape economic decisions and outcomes. It tests where actual choices depart from standard models of rational decision-making.
Opportunity cost: The value of the best alternative forgone when a choice is made. It measures what consumers and firms give up when they choose one option.
Profit maximization: A firm's choice of output and inputs to achieve the greatest difference between revenue and cost. It links firms' production decisions to supply and market prices.
Monopoly: A market structure in which one seller faces no close substitute for its product. A monopolist can restrict output and set price above marginal cost.
Public good: A good that is nonrival in consumption and difficult to exclude nonpayers from using. Its properties can prevent markets from supplying an efficient amount.
Information economics: The study of how the distribution and quality of information affect economic decisions and markets. It explains outcomes such as adverse selection and moral hazard.

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