This chapter provides an overview of some basic concepts and philosophy in microeconomic theory. Microeconomic theory concerns the behavior of individual economic actors and the aggregation of their actions in different institutional frameworks. This description introduces four categories: the individual actor, traditionally either a consumer or a firm; the behavior of the actor, traditionally utility maximization by consumers and profit maximization by firms; an institutional framework, which describes what options the individual actors have and what outcomes they receive as a function of the actions of others, traditionally the price mechanism in an impersonal marketplace; and the mode of analysis for modeling how the various actors' behaviors will aggregate within a given framework, traditionally equilibrium analysis. Ultimately, the purpose of microeconomic theory is to provide a better understanding of economic activity and outcomes. The chapter then considers the levels of scope, detail, emphasis, and complexity of the theories and models presented in the book.
Keywords: microeconomic theory, individual economic actors, utility maximization, profit maximization, institutional frameworks, price mechanism, equilibrium analysis, economic activity, economic outcomes
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