Scope of Micro Economics

Scope of Micro Economics:

The following chart gives an idea of the scope of micro economics:

(a) Theory of Product Pricing :

The price of an individual commodity is determined by the market forces of demand and supply. Micro economics is concerned with demand analysis i.e. individual consumer behaviour, and supply analysis i.e. individual producer behaviour.

(b) Theory of Factor Pricing :

In Micro economics, land, labour, capital and entrepreneur are the factors that contribute to the production process. Micro economics helps in determining the factor rewards for land, labour, capital, and entrepreneur in the form of rent, wages, interest, and profit respectively.

(c) Theory of Economic Welfare :

Theory of Welfare basically deals with efficiency in the allocation of resources. Efficiency in the
allocation of resources is attained when it results in maximization of satisfaction of the people. Economic efficiency involves three efficiencies :
• Efficiency in production :

Efficiency in production means producing maximum possible amount of goods and services from
the given amount of resources.

• Efficiency in consumption :

Efficiency in consumption means distribution of produced goods and services among the people for consumption in such a way as to maximize total satisfaction of the society.

• Overall economic efficiency :

It means the production of those goods which are most desired by the people.  Micro economic theory shows under what conditions these efficiencies are achieved.

Thus, the focus of micro economics is mainly confined to price theory and resource allocation. It does not study the aggregates relating to the whole economy. This approach does not study national economic problems such as unemployment, poverty, inequality of income etc. Theory of growth, theory of business cycles, monetary and fiscal policies etc. are beyond the limits of micro economics.