Bussiness Economics

Topics: Economics, Microeconomics, Production-possibility frontier Pages: 10 (2979 words) Published: August 15, 2013
Microeconomics - Meaning Scope Features Uses Limitations
Post : Gaurav Akrani Date : 11/10/2010 08:36:00 PM IST
No Comments Labels : Economics, Study Notes

Study of Economics - Micro & Macro Economics

The study of economics is divided by the modern economists into two parts viz. Micro economics and Macro economics. This division is shown in the figure / chart above. Micro economics and Macro economics, both the terms were used in 1933 by Prof. Ragnar Frisch from Oslo University of Norway. The word micro has been derived from the Greek word `Mikros' i.e. small and the word macro has been derived from Greek word `Makros' i.e. large.

What is Microeconomics ? Meaning & Definition

Micro means small. Thus, micro economics analyses individualistic behaviour. It studies an individual consumer, producer, price of a particular commodity, household, etc. According to Prof. K. E. Boulding, "Micro Economics is the study of particular firm, particular household, individual prices, wages, incomes, individual industries and particular commodities."

Subject Matter or Scope of Microeconomics

Micro Economics is concerned with the following topics :-

1. Commodity Pricing

Prices of individual commodities are determined by market forces of demand and supply. So micro economics makes demand analysis (individual consumer behaviour) and supply analysis (individual producer behaviour).

2. Factor Pricing

Land, labour, capital and entrepreneur, all factors contribute in production process. So they get rewards in the form of rent, wages, interest and profit respectively. Micro economics deals with determination of such rewards i.e. factor prices. So micro economics is also called as 'Price Theory' or 'Value Theory'.

3. Welfare Theory

Micro economics deals with optimum allocation of available resources and maximisation of social welfare. It provides answers for 'What to produce?', 'When to produce?', 'How to produce?' and 'For whom it is to be produced?'. In short, Micro economics guides for utilizing scarce resources of economy to maximize public welfare.

Characteristics / Features of Microeconomics

Classical economists always insisted on micro economics because they believed that it is better to understand concept at individual level and then go for general (or macro) level. E.g. first understanding individual consumer behaviour and then analyzing the behaviour of entire market.

1. Nature of Analysis

In micro economics, the behaviour of individual consumers and producers in detail is analysed. It is study of subject matter from particular to general.

2. Method

Micro economics divides the economy into various small units and every unit is analysed in detail. It is a slicing method.

3. Scope

Micro economic analysis involves product pricing, factor pricing and theory of welfare.

4. Application

Both theoretically and practically, micro economics is useful in formulating various policies, resource allocation, public finance, international trade, etc.

5. Nature of Assumptions

Assumption of Ceteris Paribus is always made in every micro economic theory. It means theory is applicable only when 'other things being same'.

Uses / Importance / Advantages of Microeconomics
1. Individual Behaviour Analysis

Micro economics studies behaviour of individual consumer or producer in a particular situation.

2. Resource Allocation

Resources are already scare i.e less in quantity. Micro economics helps in proper allocation and utilization of resources to produce various types of goods and services.

3. Price Mechanization

Micro economics decides prices of various goods and services on the basis of 'Demand-Supply Analysis'.

4. Economic Policy

Micro economics helps in formulating various economic policies and economic plans to promote all round economic development.

5. Free Enterprise Economy

Micro economics explain operating of a free enterprise economy where individual...
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