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MICRO ECONOMICS
Topic- SUBJECT MATTER OR SCOPE OF MICROECONOMICS
Micro Economics is concerned with the following topics :1. Commodity Pricing
Prices of individual commodities are determined by market forces of demand and
supply. So micro economics makes demand analysis (individual consumer
behaviour) and supply analysis (individual producer behaviour).
2. Factor Pricing
Land, labour, capital and entrepreneur, all factors contribute in production process.
So they get rewards in the form of rent, wages, interest and profit respectively.
Micro economics deals with determination of such rewards i.e. factor prices. So
micro economics is also called as 'Price Theory' or 'Value Theory'.
3. Welfare Theory
Micro economics deals with optimum allocation of available resources and
maximisation of social welfare. It provides answers for 'What to produce?', 'When to
produce?', 'How to produce?' and 'For whom it is to be produced?'. In short, Micro
economics guides for utilizing scarce resources of economy to maximize public
welfare.
1. Nature of Analysis
In micro economics, the behaviour of individual consumers and producers in detail
is analysed. It is study of subject matter from particular to general.
2. Method
Micro economics divides the economy into various small units and every unit is
analysed in detail. It is a slicing method.
3. Scope
Micro economic analysis involves product pricing, factor pricing and theory of
welfare.
4. Application
Both theoretically and practically, micro economics is useful in formulating various
policies, resource allocation, public finance, international trade, etc.
5. Nature of Assumptions
Assumption of Ceteris Paribus is always made in every micro economic theory. It
means theory is applicable only when 'other things being same'.
1. Unrealistic Assumptions
Micro economics is based on unrealistic assumptions, especially in case of full
employment assumption which does not exist practically. Even behaviour of one
individual can not be generalised as the behaviour of all.
2. Inadequate Data
Micro economics is based on the information dealing with individual behaviour,
individual customers. Hence, it is difficult to get correct information. So because of
incorrect data Micro Economics may provide inaccurate results.
3. Ceteris Paribus
It assumes that all other things being equal (same) but actually it is not so