Microeconomics

Microeconomics is a sub-section of economics that places attention on the behavior of individuals within a market. Unlike macroeconomics, which focuses on broadly applied regulations and trends, microeconomics is concerned with the decisions that consumers or firms make, and the factors that may determine their behavior. Microeconomics also engages with the idea of scarcity quite often, scarcity meaning the limited availability of resources. Microeconomics assumes that, under the conditions of scarcity, actors behave such that their desires are balanced with a finite supply of goods. Microeconomics seeks to determine a set of patterns which explain consumers’ behavior or firms based on the constraints of scarcity.

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.