Economics has two branches
1.
Micro economics
2.
Macro economics
Micro economics
Definition
The word micro and macro was first
time use by ranger Frisch.
The word micro means very small or
little part of economics.
Define by
different economist
“Micro economics deal with the
division of total output among the firms” (ackley)
“Micro economics is the study of
actions of individuals” (boulding)
“Micro economics is infact a macroscopic
study of the economy” (Maurice obb)
Precise definition is study of the trees not the forest. For example
individual demand and supply not whole economy’s demand and supply.
Main issues or scope of micro economics
Price theory
Price theory determines the demand
and supply and equilibrium of demand and supply. With the help of price
mechanism, all these are under capitalism is performed. The goal of producer
and consumer is profit maximization and utility maximization.
Theory of
consumer behavior
In theory of consumer behavior, we
study:
1.
Cardinal
approach (utility approach) presented by Marshal
2.
Ordinal
approach (indifference curve) presented by j.r hicks
Production
There are four factor of production:
1.
Land
2.
Labour
3.
Capital
4.
Organization
(entrepreneur)
In
this part, we study the least cost combination and best factor of production.
Theory
of firm behavior
Same
as a consumer, the firm also desires to achieve the equilibrium; this is connected
with the cost minimization (TC) and revenue Maximization (TR).
These
two situations are also identified as firm optimal factor of combination.
There
are two approaches:
Classical
approach= classical marginal productivity theory
Neoclassical
approach= isoquants theory and isocost theory (The meaning of iso is
equal)
Theory
of cost and revenues
We study
different types of cost of production in micro economics with short run and
long run point of view. Moreover, microeconomics also studies different types
of revenues.
Theory
of market structure and behavior
As we know different types of market, namely:
1.
Perfect
combination
2.
Monopoly
3.
Oligoply
4.
Dupoly
5.
Monopolistic
combination
As regards to these conditions, how
firm make decision is analyzed here.
Theory of
national income distribution
The national income of a country is
the outcome of combine effort of factor of production. National income has to
be distributed amongst these factors and for this purpose here are two theories.
First one is classical theory and second one is neoclassical theory.
Income of these factors as:
Land= rent
Labour= wages
Capital= interest
Organization= profit
Importance of Micro Economics
Micro economics is a significant
method of economic investigation. Micro economics has both practical and theoretical
significance.
To understand how’s
the economy work
Micro economics play a significant part to understanding the functioning
of a free enterprise economy. In this economy, there is no agency to coordinate
and plan the functioning of the economic system. These decisions are like how
to produce, what to produce and for whom to produce, how to distribute and what
to consume are taken by the consumers and producers without any external force.
So
the micro economics helps us to understand the working efficiency of the
economy.
Economic policies formulation
With the help of micro economics,
the state formulate correct price polices and estimate them in suitable
perspective. The analytical tools for evaluating the economic policies of the
government are provided by micro economics. Market mechanism or price is the instrument
which helps us in this respect.
Efficient use
of Resources
Resources has employed efficiently with the help of micro
economics. The modern governments faced the problem of efficient allocation of
the resources among competing ends. Thus, micro economics helps in using of
efficient resources and growth achievement with stability.
Guidance provide for business executive
Guidance provides for business executive by micro economics, in the
attainment of maximum level of productivity through employing the given
resources. A business executive is able to identify the consumer demand and determine
the costs of product with the study of micro economics.
Problems of Taxation
The problem of taxation is also studying with the help of micro
economics. Welfare implication of a tax is explained by micro economics. It is
also studies the distribution of incidence of a product between seller and
consumer.
Useful in international trade
Micro economics study is very helpful in the field of international
trade. Micro economics is used to explain the gains from international trade,
balance of payment dis-equilibrium and the foreign exchange rate determination.
The basis for forecasting:
Basis for forecasting in future is provides by micro economic. It does
not mean that it will allow us to predict the future. Rather it will allow the
possessor to make conditional forecasting.
Uses of model and its construction
The study of micro economics enables us to construct and uses
simple models for the understanding of actul economic phenomena. As regard to
see how prices are established and how resources are allocated to different
uses.
Limitations of Micro Economics
Micro economics study is not free
from certain restrictions, regardless of its uses.
Unrealistic method
of economic study
The study
of micro economics is an unrealistic method of economic analysis. The reason is
based on unrealistic assumption of full employment.
Assumption of
laissez-fair
The micro economic analyses based on
the assumption of unrealistic laissez-fair. This assumption had ended at the
time of great depression of the 1930’s.
Study of parts
Micro economics neglects the study
of whole economy; it is just concerned with the study of parts.
Misleading in analysis
The study of micro economics is not just sufficient but also
misleading in analyzing a number of economic problems.