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Microeconomics Definition, Effects, and Significance


Microeconomics is a very important facet of economics. It is one of the fundamentals of the subject and in order to develop a good understanding of the study, we need to properly distinguish between microeconomics and macroeconomics. But I’m getting ahead of myself, we need to answer an important question first; what exactly is economics?

Microeconomics Definition

Finally, the golden question; the one we have all been waiting for what is microeconomics? To quote Wikipedia;

“ Microeconomics (from greek prefix micro- meaning “small” + economics) is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms “

“ Oh great, you can copy-paste!” Alright, simmer down there you don’t have to be snappy there buddy. I never said I wouldn’t elaborate. So let’s break down the definition, shall we?

“Branch of Economics”

Economics is a pretty broad subject. We’re dealing with a large variety of topics and discussing multiple issues. Microeconomics is only one of several sects of the subject. Microeconomics sheds the spotlight on the decision of each individual separately as opposed to taking on the whole economy at once.

This separation is important to remove objectivity and helps us view each and every actor in the economy in detail so we can analyze their decisions.

“Behavior of Individuals and Firms in Making Decisions”

Individuals and firms are unpredictable. It is hard to tell what decision one makes at any point of time. The decisions they make are based on several factors such as time, price and trends. It is ever-changing and hard to understand and guess what decision these actors would make in a particular situation.

Economics is about ripple effects, these tiny decisions affect the entire economy. That is why even though it is quite difficult we must attempt to comprehend the choices that each member of the economy makes. 

What is Microeconomics
What is Microeconomics

“Allocation of Resources”

As we established earlier in the article, resource allocation is arguably the most important objective of an economist. Allocation of resources seems like a macro concept where the whole economy acts as one in using the resources but that is dead wrong.

Resource allocation is heavily dependent on the actions of each individual and firm. For example; as a sole owner of a bakery, I am the only one who decides whether or not I use 5 kgs of flour for my cake. No one else can interfere and my individual decision affect the allocation of flour in the world.

“ The Interactions Among These Individuals and Firms”

This is a tricky topic. Interactions between the actors in an economy vary greatly depending on the relationship they share. Economists need to evaluate and understand the behaviour of these people in order to accurately draw conclusions from the interactions the actors share.

This is why psychology is such a huge part of economics. We need to understand human communication and predict people’s actions from their interactions when we study microeconomics. This is immensely tough and one of the reasons why microeconomics is regarded as a difficult subject.

The Effects of Microeconomics

Hopefully, you now understand the meaning of the word microeconomics.  Now that we have a gist of the subject, we can take a look at what effects making this distinction has had on the world we live in.


The biggest impact of microeconomics has been about how people started learning the subject. Before we understood that economics had to focus on individuals, we tried to loop both macroeconomics and microeconomics into one tedious syllabus.

This made the topic hard to track and understand for young learners. The distinction has made the subject much more accessible and easier to grasp for beginners. 

Basically, you don’t have to be Einstein to take economics anymore. Even dummies can understand the subject as it is given to us in small bits rather than stuffed together in  an inconvenient information delivery package.


Microeconomics was a new field of study and as such, it created several new job opportunities for the people pursuing the subject. From the definition, we can gather that; microeconomics is a high-level concept and requires a good understanding of economics itself as well as a basic understanding of human psychology.

This opens up jobs at big firms and the government for people specializing in the art of microeconomics as it is a complex yet crucial aspect of running any successful business.



Perhaps, the conclusion we can draw from both the previous effects is that microeconomics boost our drive to innovate. We not only learn how to analyze each aspect of the economy separately but we also get fair job opportunities to apply our skills in the real world.

People who genuinely enjoy the subject spend hours on end on their career and education. This dedication gives birth to several theories and concepts that help us comprehend the subject and world we live in. 

Significance of Microeconomics

The importance of this field of studies can not be stressed. Economics is a very complex subject that is hard to analyze even with the distinction between microeconomics and macroeconomics. If we did not make this variation, we would be completely lost.

Rather than telling why microeconomics is so important, let me show you what would happen without microeconomics.

The Effects of Microeconomics
The Effects of Microeconomics


Without microeconomics, we would not analyze individual consumers. This would make it impossible for us to identify the factors that affect demand as it is a very subjective topic.

This would make it impossible to predict demand patterns and so firms could not sell the good that yields maximum profits.

Opportunity Cost

Opportunity cost is the value of the decision that you do not make. For example; if you have $20 and you buy a mouse instead of a keyboard, the keyboard is your opportunity cost.

This is a fundamental concept of economics. We would not have known about the subject without looking at the economic actors individually. 

As you can see microeconomics is very important to understand two basic concepts of economics. Without these topics, we would not even have a basic understanding of how an economy works.


I hope this article was able to tell you a thing or two about microeconomics. Microeconomics is a fun and easy subject as long as you are interested in it. But as with every field of study, without hard work and dedication, you are unlikely to yield any results.


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