July 17, 2024 

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KEYNESIAN DISEQUILIBRIUM: The state of the Keynesian model in which aggregate expenditures are not equal to aggregate production, which results in an imbalance that induces a change in aggregate production. In other words, the opposing forces of aggregate expenditures (the buyers) and aggregate production (the sellers) are out of balance. At the existing level of aggregate production, either the four macroeconomic sectors (household, business, government, and foreign) are unable to purchase all of the production that they seek or producers are unable to sell all of the production that they have.

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The branch of economics that studies the parts of the economy, especially such topics as markets, prices, industries, demand, and supply. It can be thought of as the study of the economic trees, as compared to macroeconomics, which is study of the entire economic forest.
The overall study of economics is divided into two related, but relatively separate branches--microeconomics and macroeconomics. Microeconomics is the study of smaller parts of the economy, or the microeconomy. Macroeconomics is the study of the aggregate economy, or the macroeconomy.

A Little History

The modern study of microeconomics has been around since Adam Smith published his book, The Wealth of Nations in 1776. Not only did The Wealth of Nations lay out the basic principles of the economic discipline for the first time in a single volume, it also created the foundation for the microeconomic analysis of markets, demand, supply, price, and a host of related topics.

From the late 1700s through the early 1900s, economists devoted the bulk of their inquisitive mental efforts to refining and perfecting the principles of demand, supply, and markets with the goal of understanding prices. Other key contributors to the development of microeconomics during this period includes Thomas Malthus, David Ricardo, John Stuart Mill, Jeremy Bentham, William Stanley Jevons, and Alfred Marshall.

Problems and Issues

Microeconomics, as the study of parts of the economy, is concerned with a vast array of different problems and issues. However, most relate in one way or another to the two microeconomic goals of efficiency and equity.

Most microeconomic analysis has focused on the question of efficiency, achieving the highest possible level of satisfaction from available resources. Like most microeconomics, this begins with the market and its assorted components--demand, supply, price, equilibrium, efficiency, competition.

The study of market demand leads into the analysis consumer demand and utility. The study of market supply leads into the analysis of production and cost.

From there microeconomics moves into such broad topics as market structures, factor markets, the public sector, and international trade. Microeconomic theories and principles are also used to analyze a wide variety of issues, including crime, poverty, health care, environmental quality, resource depletion, and voting behavior.

Alternative Theories

The study of microeconomics consists of several distinct, but related theories. The theory of the market, based on the interaction of demand and supply, forms of the keystone of modern microeconomic analysis. Several other key theories then provide greater support for the market theory. One is consumer demand theory, which looks behind the demand curve and provides a better understanding for market demand. Another is short-run production analysis, which looks behind the supply curve and provides a better understanding of market supply.

The basic market theory is then tweaked by modifying key assumptions for alternative explanations of market structures, including perfect competition, monopoly, oligopoly, and monopolistic competition. Further modifications provide theories of public goods and externalities.

Further modifications generate useful explanations of assorted issues, problems, and topics, giving rise to distinct theories of crime, voting, firm relocation, public choice, international trade, and many, many more.

Politics and Policies

Microeconomics, since the early days of Adam Smith, has been concerned with ways to improve the human condition. This has inevitably led to the development of assorted economic policies. Most of focused on problems and failures of the market to achieve efficiency. Others are concerned with ways to improve equity and the perceived fairness with which income and wealth are distributed.

Microeconomic policies generally take the form of legislative laws, administrative rules and regulations, executive orders, or judicial decisions.

Among the early efficiency-improving policies were antitrust laws, established in the United States in the late 1800s and early 1900s, aimed at correcting the problems of monopoly and market control.

Later microeconomic policies addressed the inefficiency problems of externalities and imperfect information through government agencies, including the Food and Drug Administration, Environmental Protection Agency, and Consumer Product Safety Commission, that regulated economic activity.

Other policies relying on government taxation and spending authority have dealt more specifically with equity concerns. The Social Security system and welfare program are among the most noted.

Like most aspects of government, microeconomic policies are intertwined with politics and political views. Political liberals generally favor an active role for government and tend to promote policies to improve efficiency and equity. Political conservatives generally favor little or no government intervention and tend to question the need for such corrective actions.


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MICROECONOMICS, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2024. [Accessed: July 17, 2024].

Check Out These Related Terms...

     | macroeconomics | microeconomic goals | efficiency | equity |

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     | economics | mixed economy | economic system | economy | liberal | conservative | political views | government functions |

And For Further Study...

     | economic analysis | economic thinking | three questions of allocation | seven economic rules | four estates | distribution standards | production possibilities | opportunity cost, production possibilities | law of increasing opportunity cost | utility analysis | short-run production analysis | long-run production analysis | elasticity | total cost |

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