What is Microeconomics

Microeconomics has been defined by many economists in their own ways. Micro means small, it is derived from a Greek word ‘Mikros’. Thus microeconomics deals with individual factors like individual customers, price, household etc.  Microeconomics is concerned with the certain factors:

Pricing of commodities: since micro economics is based on individuals it takes into account the prices of individual commodities that are determined by market forces. Market forces here refers to demand and supply, hence micro economics make a detailed analysis of demand and supply of individual commodities in fixing prices for them.

Pricing of factor: here factors refer to those things which contribute towards production process. For example land, labor, capital etc. These in turn helps in getting rewards in the form of rent on land, interest on capital, wages for labor employed etc. Hence in other words micro economics is also referred to as ‘Value Theory’.

Maximize welfare: micro economics deals in understanding what to produce and for whom to produce? Thus it uses ideal allocation of available resources to maximize welfare of the laborer’s. Sometimes it is also called the ‘Welfare Theory’.

Micro economics has certain characteristics in itself; the behavior of individual consumers is analyzed in detail. It uses the slicing method by dividing the economy in to small units and analyses each and every unit in detail. This method helps in analysis of product pricing to suit different categories of customers. The results of such analysis help to articulate various policies like resource apportionment, international trade policy, public finance etc.

Since micro economics take care of individual analysis it helps in proper allocation of scare resources and utilization of the same to produce different types of goods and services to meet the needs of various customers. By making a demand supply analysis it fixes the prices of commodities thus making a fair price policy. Micro economics helps the government in the taxation policies as to what should be the tax rate for buyers and sellers. These policies are very helpful during international trading since the government has already fixed the tariff rates.

Micro economics has some disadvantages because it is based on certain assumptions. One such assumption is that it stands on full employment. It is practically impossible to have full employment in any economy; hence this causes a major draw back to micro economics. Since micro economics deals with individual behavior and individual customers, it is left with inadequate data. This data analysis will provide inaccurate results. Hence because of these assumptions the economy faces problems in going ahead with its economic policies.

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