Importance of Micro Economics

Importance of Micro Economics :

1) Study of Individual Units :

Micro economics is the study of the behaviour of small individual economic units, like individual firm, individual price, individual household etc.

2) Price Theory :

Micro economics deals with determination of the prices of goods and services as well as factors of production. Hence, it is known as price theory.

3) Partial Equilibrium :

Equilibrium is the balance between two factors. Micro economic analysis deals with partial equilibrium which analyses equilibrium position of an individual economic unit i.e. individual consumer, individual firm, individual industry etc. It isolates an individual unit from other forces and studies its equilibrium independently.

4) Based on Certain Assumptions :

Micro economics begins with the fundamental assumption, “Other things remaining constant” (Ceteris Paribus) such as perfect competition, laissez-faire policy, pure capitalism, full employment etc. These assumptions make the analysis simple.

5) Slicing Method :

Micro economics uses slicing method. It splits or divides the whole economy into small individual units and then studies each unit separately in detail. For example, study of individual income
out of national income, study of individual demand out of aggregate demand etc.

6) Use of Marginalism Principle :

The concept of Marginalism is the key tool of micro economic analysis. The term 'marginal' means change brought in total by an additional unit. Marginal analysis helps to study a variable through the changes. Producers and consumers take economic decisions using this principle.

7) Analysis of Market Structure :

Micro economics analyses different market structures such as Perfect Competition, Monopoly, Monopolistic Competition, Oligopoly etc.

 8) Limited Scope :

The scope of micro economics is limited to only individual units. It doesn’t deal with the nationwide economic problems such as inflation, deflation, balance of payments, poverty,
unemployment, population, economic growth etc.