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MICRO- ECONOMICS

INTRODUCTION
Economics is a social science which explains
about the human behavior. It is divided into two parts:
Microeconomics and Macroeconomics. Microeconomics means the
study of individual unit. Macroeconomics means the study of large
unit together.

MEANING
Microeconomics is derived from Greek word
‘’Mikros’’ which means small. It is study of individual or unit, for
e.g.:-It is a study of tree not a forest. It is a deep study. It is a
study of per capita income.

DEFINITION
1) According to Maurice Dobb “Microeconomics is a microscopic
study of economics. “

2) According to Prof Kennath “microeconomics is a study of

particular firm, particular households, individual prices, wages,
incomes, individual industries and particular commodities ‘’.

FEATURE OF MICRO-ECONOMICS

1) Microscopic study: - It is a study of individual things, small

sector. It studies about the small units in detail.

2) Slicing method: - It refers to the study of individual units

by dividing it. It concentrates on one topic at one time and
then compares it.

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3) In depth study: - It is a detail study. It helps to understand

the things in deep.

4) Partial equilibrium (Equal distribution) : - It divides the

things in equal parts for deep studies. When it concentrates
at one thing, the other units remain constant. There is one
famous phrase in Greek known as “Ceteris paribus” which
constant. And after then it try to established the relationship
between two variables.

5) Pricing: - Micro-economics is concerned with factors pricing.

For e.g., Land, Labour, capital and enterprises, and
production pricing. For e.g., Interest, profit, wages,
production, etc.

6) Study of economic welfare: - It studies about the proper

allocation of resources to maximize the welfare of the
society. This helps to increase the production and services.

7) Science of economizing: - Micro-economics suggest

economizing i.e. to satisfy maximum wants with the help of
limited resources.

8) Application: - It is a wider application in theory as well as

practical. It help to form the policies, allocation of resources,
public finances, international trade, etc.

9) Economic model: - It is a most important used in Micro-

economic to express the complicated phenomenon in an
easy manner with the help of charts, tables, diagrams,
statistical, etc.

IMPORTANCES OF MICRO-ECONOMICS

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1. Working of free market economy: - It helps producers to

produce with the help of demand and supply. All economic
decisions such as how, what and how much to be taken by
producers easily.

2. Resources allocation: - Micro-economics theory guides the

individual and the government for better allocation of limited
resources.

3. Price determination: - Micro-economics help to understand

about the demands and supply for determination of prices of
various commodities without any governments intervention.

4. Economic policies: - It is very important in farming the

economic policies like price policy, text policy, etc. for the
economic welfare of the people.

5. Fore casting: - It helps in making future prediction based on

conditions. For e.g., demand forecasting, sales forecasting,
etc.

6. Simple models: - Micro-economics uses simple models like

chart, table, statistics, etc. for understanding the
complicated phenomenon in an easy manner.

7. International trade: - It explains about the International

trade like balance of payment, determination exchange rate,
etc. Thus it explains how we can gain from International
trade.

8. Business planning: - It helps to frame a proper planning for

business like cost, demand, production etc.

9. Taxation: - It explains the affects of tax on social welfare. It

helps to understand about the various tax.

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10. Economic welfare : - Micro-economics helps in

formulation of economic policies which improves the public
welfare

LIMITATIONS OF MICRO-ECONOMICS
1) Unrealistic assumption: - Most of the micro economics
theories are based on certain assumptions which are real
and do not exist in actual life.

2) Defective conclusion: - The result of micro-economics can

be applied to the study of aggregate. Sometimes the results
may not be true in certain cases.

3) Ignore aggregates: - Micro-economics studies single and

not the whole of economic system. It doesn’t explain the
functioning of the whole economic system.

4) Marginalize: - Micro-economics uses the concepts like

marginal utility, marginal product, marginal revenue etc. It is
very difficult to realize the principle of marginalism in real
life.

5) Dependency: - Micro-economics has to dependent of

macro- economics to some extent, particularly for explaining
the determination of profit and rate of interest.