Microeconomics: what is studied and what are the theories?

*Written by: Adriano Giacomini Morais, professor of Economics at ESEG Faculty

Microeconomics is present in our daily lives, even when we don't realize it. From choosing a product at the market to large companies setting prices, everything involves individual decisions and how limited resources are used.

But what exactly is studied in microeconomics, and what are the main theories that explain how markets work?

In this content, you will understand the central concepts of this area and why it is so important for administration, finance, and public policy.

So keep reading and understand what microeconomics is!

What is microeconomics?

Microeconomics is the branch of economics that studies the individual behavior of economic agents—such as consumers, businesses, and workers—and also how they make decisions in the face of resource scarcity.

She analyzes how prices are formed, how supply and demand work, and what determines the decisions of consumers and businesses.

By observing these interactions in specific markets, microeconomics seeks to understand how small individual decisions influence the organization and functioning of the economy as a whole.

What is the main focus of microeconomics?

Microeconomics courses present the theoretical foundations that explain how markets function and the behavior of economic agents.

The objective is to enable the student to understand and analyze, in a structured way, how consumers choose what to buy, how companies define their production, and how price determination in different market structures (perfect competition, monopoly, oligopoly, etc.) influences economic outcomes.

Furthermore, microeconomics courses develop analytical reasoning through graphical and mathematical models, encouraging the critical interpretation of real economic problems, such as pricing policies, taxation, subsidies, and market regulation.

Read also: Microeconomics and macroeconomics: Understand the difference.

How does market equilibrium occur?

One of the central concepts in microeconomics is that of the market equilibrium price. This price is the value that balances the quantity offered by sellers with the quantity demanded by consumers, without generating a surplus or shortage of product.

For example, a war in the Middle East tends to impact the equilibrium price of oil in the global market. If the conflict reduces supply or generates uncertainty, the available quantity decreases, pushing prices upwards. With higher prices, consumers of petroleum products may reduce consumption or seek alternatives.

The new, higher equilibrium price is reached when the quantity offered by producers once again matches the quantity consumers wish to buy, thus maintaining the market in equilibrium.

What are the elements of microeconomics?

In ESEG College, Microeconomics courses are usually divided into five main parts; see below what is studied in microeconomics:

Consumer theory

It studies how individuals decide what to consume given limited resources, seeking to maximize their satisfaction. It includes concepts such as preference, budget constraint, and elasticity of demand.

Example: Imagine a consumer with R$50 in their pocket who needs to choose between going to the movies or ordering food for delivery. They assess their preferences and decide what brings them the most satisfaction at that moment. Elasticity appears, for example, when the price of meat rises and many people start consuming chicken—showing how demand reacts to price.

Theory of the firm

It analyzes how companies decide what to produce, how much to produce, and at what price to sell. It addresses costs, revenues, profits, and production efficiency.

Example: A bakery needs to decide how many loaves of bread to produce per day. If it makes too few, it loses sales; if it makes too many, it may have waste. Furthermore, it needs to set a price that covers costs (ingredients, employees, energy) and still generates profit, without driving customers away.

Market structures and competitive strategy

It focuses on the different types of markets — perfect competition, monopoly, oligopoly, and monopolistic competition — and how these structures influence business decisions and competitive strategies. It also studies how supply and demand determine prices and quantities in each market.

Example: In the telecommunications sector, a few companies dominate the market (oligopoly), so one company's pricing decisions directly impact the others. In contrast, at an open-air market (closer to perfect competition), many vendors offer similar products, which reduces the power of each to set excessively high prices.

Information, market failures, and the role of government.

It examines situations where the market does not function perfectly, such as externalities, public goods, and asymmetric information. It shows how the government can intervene through taxes, subsidies, regulations, and public policies to correct these failures and improve social welfare.

Example: Pollution generated by a factory is a negative externality because it affects people who are not directly involved in production. In this case, the government can impose fines or create environmental regulations.

In the case of asymmetric information, the health plan does not know the client's complete health history. The client, however, knows if they have any pre-existing conditions or a higher risk of needing to use the service. This information gap can lead to higher-risk individuals subscribing to the plan more frequently, increasing costs for the company; this is a classic example of asymmetric information.

Advanced topics

They include general equilibrium analysis, welfare economics, contracts, incentives, and other topics that show how different markets interconnect and how individual decisions affect the economy as a whole.

Example: An increase in fuel prices affects not only drivers, but also the cost of transporting food, the final price in supermarkets, and even inflation. This shows how different markets are interconnected and how a change can generate chain effects in the economy.

Conclusion: Why is microeconomics important?

Understanding microeconomics is fundamental to various fields, as it provides tools to understand how consumers and businesses make decisions and how markets function.

In administration, it helps to plan production, pricing, and management strategies efficiently. In finance, it assists in evaluating investments, analyzing risk, and making decisions about resource allocation.

In public policy, microeconomics provides guidance on taxes, subsidies, and regulations to correct market failures. In marketing, it allows for an understanding of consumer behavior and the elasticity of demand, contributing to pricing strategies and product positioning.

In general, knowledge of microeconomics is essential for any professional who needs to analyze economic decisions, anticipate market reactions, and formulate strategies based on solid information.

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