Meaning of Micro Economics:

Micro Economics Meaning is micro study of every small unit of the economy in greater detail. The term Micro economics has been derived from Greek word MIKROS which means small. So micro economics is the study of a small part of the economy. Micro Economics is that branch of economy that only deal with the study of the behavior and action of only individual economic units in detail. Its splits up the entire study in the small many small parts for the purpose of convenience of our study that is why it is called as slicing method. In Micro Economics we study the income earned by one person, expenditure incurred by one consumer, wages given by one firm to its workers, and profit earned by one firm etc. Merits and Demerits can also study in the Micro Economics.

Many economists have defined micro economics in differential ways.  Among them the following are some of the important one.

 In the words of professor Boulding, “Microeconomics study of particular firms’ particular household, individual prices, wages, income, particular industries particular commodities.

 According to MC carvel, in Micro Economics we examine individual tree not the entire forest.

Merits of Micro Economics:

• Easy understanding of economics: Micro economics helps a beginner to understand economics easily. The step by step approach makes the task of economic analysis simpler and easier. It is helpful for construction of economic models, theories for explaining complex economic problems.
• Basis for macroeconomics and welfare economics: It is the basis for macroeconomics as the study of individual units collectively makes the entire system. Similarly it is the basis for welfare economics because the welfare of all individual collectively makes the social welfare.
• Basis for price determination: By using the demand and supply model it helps in the determination of the prices of various goods and services in the market equilibrium price is determine at the point when demand for a product or service is equal to the supply of the product or services.
• Basis for Allocation of resources: It helps in proper allocation of scarce resources between different alternative uses in the most productive manner by both consumers and producers by using the law of substitution for achieving growth with stability.
• Helps to understand the working of an economy: Micro economics tells how a decentralize free market economy with it’s million of consumer and producer function without any government control. It also helps businessmen for achieving growth with stability.
• Basis for distribution of goods and services: Micro study helps us to how the goods and services produce are distributed among various people for consumption through price mechanism.
• Basis for business decision: Most of business and managerial decision of business executive depends on microeconomic theories principle and concepts. The concept of demand and supply, opportunity cost, law of substitution, etc. have a great help in estimating future demand cost profit.
• Helps to identify the condition of efficiency: It explains the conditions of efficiency in consumption and production and suggest suitable policy measures to promote economic efficiency and welfare of people in the economy.

Demerits of Micro Economics:

• Wrong assumption: Micro Economic analysis is based on several wrong assumption like full employment of resources, perfect competition in the market, etc. all this assumption are highly unrealistic in nature and as such they have reduced the value of microeconomics.
• Existence of laissez faire policy: Laissez faire principle is not alive. It is replaced by direct government interference and control all over the world.
• It gives partial picture of an economy: It studies only as part of the economy hence it does not throw any light or the collective functioning of the economy. It does not give the correct picture of the working of the economy because it is concerned with the part of the economy.
• Narrow scope: The study of economic growth rate, trade cycle, economic planning, developing, inflation and deflation, unemployment, poverty, in equality etc. are beyond the range of microeconomics.
• Misleading: What is true in the case of an individual unit may not be true in the case of aggregate. for example if a depositor withdraws entire amount of money nothing will happen to a bank, but when all the depositors withdraw the entire deposit simultaneously on a day surely the bank will collapse.
• Lack of solution to macroeconomic problems: Microeconomics theories have utterly failed to bring the solution to macroeconomic problems like unemployment, inflation, public finance etc.
• Limited Scope: Microeconomics focuses on individual markets and agents, sometimes neglecting broader economic trends and macroeconomic issues like inflation, unemployment, and economic growth.
• Static Nature: Micro economics is static in nature. Many microeconomic models are static and do not fully account for the dynamic nature of markets over time, including technological changes, evolving preferences, and shifting regulatory grounds.

also read: what is macro economics? explain its uses and limitations.