Microeconomics is a sub-discipline that focuses on economic dynamics as they exist among consumers (individuals or smaller groups) as well as specific firms. It analyzes the way these actors make decisions, why they make them, and what conditions those decisions produce.

Allocative Efficiency

Allocative efficiency is the level of output where the price of a good or service is equal to the marginal cost (MC) of production. Allocative efficiency is achieved when goods and/or services are distributed optimally in response to consumer demands (that is, wants and needs), and when the marginal cost and marginal utility of goods and services are equal.

Moral Hazard

Moral hazard is a set of circumstances in which one individual or entity has the ability to take a risk because another individual or entity we’ll have to deal with any negative outcomes. Moral hazard specifically refers to the risk that exists when two parties lack equal knowledge of actions taken following an existing agreement.