Microeconomics is the branch of economics that studies the decision-making of individual people or companies within a market under conditions of scarcity - which is to say, limited money or other resources. This is in contrast to macroeconomics, which seeks to understand aggregated groups of economic actors at the state, country, or global level.
Microeconomics is important as a tool to help businesses understand consumer behavior as well as the calculus of competitors. For example, microeconomics is the foundation of pricing theories that help companies set optimal prices for their products, or it could help anticipate how changing interest rates are likely to affect investment decisions of other businesses. And, while the theories of microeconomics are not new, the ability to apply data analysis techniques to vast datasets about the behavior of individuals and companies has helped to deepen the insights that microeconomics can produce.
Amidst these advances in the field, microeconomics orthodoxy is often challenged from a variety of perspectives. In contrast to the classical model of supply and demand balancing to create efficient pricing in a “perfect” market, the field of behavioral economics has drawn out the ways cognitive biases and other “irrational” economic actions frequently drive decision-making. Conventional microeconomics may also ignore environmental or social externalities, which are impacts on parties outside an economic transaction that are not reflected in prices.
Despite these shortcomings, an understanding of microeconomic theory is still a fundamental starting point to describing market behavior - even if your goal is to highlight market imperfections or other ways that conventional theory fails in the real world.
