Microeconomics is the study of which types of economic decisions and units in an economy?

Introduction / Context:
This question deals with the basic scope of microeconomics. Microeconomics is one of the two main branches of economics, the other being macroeconomics. While macroeconomics looks at the economy as a whole, microeconomics focuses on the decisions and behaviour of individual units. Understanding which units are studied in microeconomics is essential for classifying topics and for answering questions about demand, supply, and market structures.

Given Data / Assumptions:

• The subject is microeconomics.
• The options mention firms, households, and consumers individually and jointly.
• One option mentions only governments setting fiscal policy, which is a macro topic.
• We assume a standard textbook classification between micro and macro.

Concept / Approach:
Microeconomics studies how individual decision makers allocate scarce resources among competing uses. These decision makers include firms, households, and consumers. Firms decide how much to produce, what technology to use, and what prices to charge in different market structures. Households decide how many hours to work, how much to save, and how to allocate spending across goods. Consumers, who may be individual members of households, decide what goods and services to purchase given prices and incomes. Together these decisions determine demand and supply in individual markets. Government fiscal policy at the national level is generally treated under macroeconomics, not microeconomics.

Step-by-Step Solution:
Step 1: Recall that microeconomics is sometimes called the study of individual economic units and specific markets.Step 2: Identify which options refer to these micro level units. Individual firms, households, and consumers are all micro units.Step 3: Recognise that each of these units makes decisions about resource use, consumption, and production.Step 4: The option that combines all three types of decisions correctly summarises the scope of microeconomics.Step 5: Government fiscal policy, such as setting total taxes and expenditure, is a macroeconomic subject and does not define microeconomics.

Verification / Alternative check:
Look at typical microeconomics topics covered in textbooks: consumer choice theory, theory of the firm, market demand and supply, price determination in perfect competition and monopoly, labour markets, and pricing of factors of production. Each of these topics focuses on decisions taken at the level of individual agents or specific markets. Macroeconomics topics, in contrast, include national income determination, inflation, unemployment, and fiscal and monetary policy, which are clearly aggregate in nature. This comparison confirms that microeconomics covers all the individual level decisions mentioned in the combined option.

Why Other Options Are Wrong:
Options A, B, and C each describe only one type of individual decision making unit, which is incomplete because microeconomics covers all three. Option E refers to governments setting fiscal policy, which is more properly a macroeconomic topic related to aggregate demand management. While microeconomics can analyse government interventions in specific markets, the broad national budget is not a micro level subject.

Common Pitfalls:
Some learners mistakenly believe that microeconomics is only about consumers and ignore firms and households as separate decision makers. Others think that any economic decision, including government budget decisions, must be micro simply because it involves choice. The best way to avoid this confusion is to remember that micro is about individual households, firms, and specific markets, whereas macro is about aggregates like total output, total employment, and overall price level. When you see the word individual in a question about scope, it almost always points to microeconomics.

Final Answer:
Microeconomics is the study of all of the above individual decision making units, namely firms, households, and consumers.