The economy must be efficient both in production and in exchange. Efficiency in production requires getting the greatest output from the available resources. The growing popularity of the market approach to solving economic problems stems from the market's ability to promote both types of efficiency. The text includes another feature box that highlights the way in which the economics faculty at Arizona State University used the market to promote efficiency in the allocation of faculty offices. The efficiency of markets comes about because markets rely on individual decision- making.
Microeconomic theory is based on the notion that individual decision making is rational.
Decision makers are rational when they attempt to maximize the net benefits of their actions. There are two parts to this process. Second, decisions are made at the margin. In the simplest terms, marginal analysis compares the marginal benefits with the marginal costs of any activity. The net benefits of the activity will be at a maximum when marginal benefits equal marginal costs.