Which of the following statements best describes microeconomics?

• A. It focuses on the economic relationships between different countries and international trade.
• B. It examines the impact of government fiscal and monetary policy on national output.
• C. It studies the behavior of individual households and firms in making decisions about the allocation of limited resources.
• D. It analyzes the overall performance and structure of the entire economy, including inflation and unemployment.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the scope of microeconomics. Microeconomics studies the behavior of individual economic agents, such as households and firms, and how they make decisions regarding the allocation of scarce resources.
2. Step 2: Differentiate microeconomics from macroeconomics. Macroeconomics focuses on aggregate economic variables like national output, inflation, unemployment, and government policies affecting the entire economy.
3. Step 3: Analyze each statement in the problem: The first statement about economic relationships between countries relates to international economics, which is part of macroeconomics or international trade theory.
4. Step 4: The second statement about government fiscal and monetary policy impacts on national output is a macroeconomic topic, not microeconomics.
5. Step 5: The third statement correctly describes microeconomics as it focuses on individual households and firms making decisions about resource allocation, which is the core of microeconomic study.