**Microeconomics describes the trade-offs that consumers, workers, and firms face, and shows how these trade-offs are best made.
In a centrally planned economy, the government sets prices. In a market economy, prices are determined by the interactions of consumers, workers, and firms.
The theory of the firm begins with a simple assumption – firms try to maximize their profits. The theory of the firm tells us whether a firm’s output level will increase or decrease in response to an increase in wage rates or a decrease in the price of raw materials.
Positive analysis – Analysis describing relationships of cause and effect.
Normative analysis – Analysis examining questions of what ought to be.