Question

Suppose that the government has raised by $10 a per-carat tax rate it imposes on diamonds in an effort to influence the production of these particular goods by each of the firms that produce them and purchases by individual consumers. Would we apply microeconomic or macroeconomic analysis to analyze this policy action?

Short answer

We would apply microeconomic analysis to analyze the policy action.

Step-by-step solution

Step 1. Definition of microeconomics and macroeconomics.

Microeconomics is the study of individuals whereas macroeconomics is the study of the economy as a whole.

Step 2. Type of analysis.

We would apply microeconomic analysis to analyze the policy action. The policy focuses on individual purchases and the tax rate will also be influenced by the individuals' decisions.