The real price of waffles is the chocolate you turned down
Offered only waffles, you would happily eat them. Offered waffles or chocolate, and you prefer chocolate, picking waffles means giving up something you value more. Economists call that sacrifice opportunity cost, and it depends only on the next best choice, whether you had five options or 5,000. It sits at the heart of microeconomics.
Microeconomics studies how individuals and firms decide to spend scarce resources, and how their choices interact inside particular markets. Its big sibling, macroeconomics, looks at whole economies: growth, inflation and unemployment. The split was probably introduced in 1933 by Norwegian economist Ragnar Frisch, who spoke of micro-dynamic and macro-dynamic analysis and later shared the first economics Nobel in 1969. The word microeconomics itself first appeared in print in 1941, in an article by Pieter de Wolff.
The theory usually starts with one idealised person whose preferences are stable and consistent: if you prefer A to B and B to C, you prefer A to C. That person tries to get the most satisfaction possible within a budget, a puzzle economists solve with calculus and call the utility maximisation problem. Another school flips this around and treats observed choices, rather than tastes, as the starting point. Two foundational frameworks date from the 19th century: Leon Walras's general equilibrium in 1874 and Alfred Marshall's partial equilibrium in 1890.
On the business side, costs split into fixed ones like rent and salaries and variable ones like raw materials. Time changes the picture. Over a few months most costs are locked in; over two or three years many become adjustable; within a decade nearly all can change as staff and machines are replaced. Sunk costs, already spent and unrecoverable, are a trap: drug companies can pour hundreds of millions into research that produces nothing sellable.
Standard supply and demand analysis assumes so many buyers and sellers that no single one can move prices, which often fails in real life. Mainstream economics does not simply assume markets beat every alternative, and a large share of the field examines where they misfire. Because prices are so central, the subject also goes by price theory, a label closely tied to the Chicago School.
Source: Microeconomics
