Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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What does microeconomics study?

The overall economic performance of a country
The behavior and decision-making of smaller units
The financial policies of large corporations
The effects of government on the economy

The correct answer is: The behavior and decision-making of smaller units

Microeconomics focuses on the behavior and decision-making processes of individual units within the economy, such as households and firms. This branch of economics examines how these smaller entities interact in the marketplace, how they allocate resources, and the consequences of their choices on supply and demand dynamics. Understanding microeconomics is essential for analyzing market structures, pricing strategies, and consumer behavior, which ultimately informs larger economic theories and policies. The other options pertain to broader economic concepts. For example, evaluating the overall economic performance of a country falls under macroeconomics, which looks at aggregate indicators and national economic health. The financial policies of large corporations would also align more with macroeconomic principles since they involve impacts on larger economic systems. Similarly, examining the effects of government on the economy addresses macroeconomic topics such as fiscal and monetary policy, which influence entire economic conditions rather than individual units.