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Microeconomics is the branch of economics that deals with individuals, companies, and industries. Microeconomics does not deal with performance of the economy as whole, which is the domain of macroeconomics. Microeconomics thus broadly encompasses many specialized bodies of theory, such as auction theory and game theory. Microeconomics also includes a theoretical framework for explaining why individual laborers organize into firms, and the type of firm that is most likely to exist to provide a particular good or service. One of the most broadly applicable areas of microeconomics is the body of production and pricing theory, which rigorously examines supply and demand to provide an understanding of how profit can arise in the delivery of goods and services. Understanding microeconomics is important for developing sophistication as an investor. A basic understanding of microeconomics is relevant to the analysis of most potential investment opportunities. Moreover, both microeconomics and macroeconomics are important foundations for a thorough understanding of modern financial theory. |
