Micro-Economics

IMPORTANCE OF MICRO-ECONOMICS;

1. To understand the working of the economy.
Micro-economics is of utmost importance in understanding the working of a free enterprise economy. In such economy there is no agency to plan and co-ordinate the working of the economic system. Such decision as how to produce, what to produce and for whom to produce, how to distribute and what to consume are taken by producers and consumers without any extraneous.
2. To provide tools for economic policies.
Micro-economics provides the analytical tools for evaluating the economic policies of the state. Price or market mechanism is the tool which helps us in this respect.
3. Helpful in the efficient employment of resources.
Micro-economics deals with the economizing of scarce resources with efficiency. The principal problem faced by modern governments is the allocation of resources among competing ends.
4. Help to Business executive.
Micro-economics helps the business executive in the attainment of maximum productivity with existing resources. It is with its help that he is able to know the consumer demand and calculate the costs of his product.
5. Helpful in understanding the problems of Taxation.
Micro-economics also helps in understanding some of the problems of taxation. It is used to explain the welfare implications of a tax. A tax leads to the re-allocation of resources from their optimal level.
6. Helpful in international trade.
In the field of international trade, it is used to explain the gains from international trade, balance of payments disequilibrium and the determination of the foreign exchange rate. It is the relative elasticities of demand for each other's products that determine the gains from international trade.
7. To examine the conditions of economic welfare.
Micro-economics can be used to examine the conditions of economic welfare. "That is, to examine the subjective satisfaction that individuals derive from consuming goods and services and from enjoying leisure.
8. The basis for prediction.
Micro-economics theory can be used as the basis for prediction. This doesn't mean that it will enable us to predict the future. Rather, it will enable the possessor to make condition prediction.
9. Construction and use of models.
Micro-economics constructs and uses simple method for the understanding of the actual economic phenomena.

MICRO-ECONOMICS,

MEANING: The word "Micro" is taken from Greek prefix (Mikros) which means 'small'. Micro-economics is the study of the economic actions of individuals and small groups of individuals.
This includes " the study of particular firms, particular households, individual prices, wages, income, individual industries and particular commodities.
It concerns itself with analysis of price determination and the allocation of resources to specific uses.
In the words of Ackley: Micro-economics deals with the division of total output among industries, products and firms and the allocation of resources among competing groups.

SCOPE: Micro-economics studies:
1. How resources are allocated to the production of particular goods and services.
2. How the goods and services are distributed among the people.
3. How efficiently they are distributed.
While studying the conditions in which the price of a particular good is determined, micro-economics assumes the total quantity of resources as given and seeks to explain their allocation to the production of that commodity.
In micro-economics the analysis of price determination and allocation of resources is studied in three stages:
A. The equilibrium of individual consumers and producers.
B. The equilibrium of a single market.
C. The simultaneous equilibrium of all markets. Besides, micro-economics studies how efficiently the various resources are allocated to individual consumers and producers within the economy. Efficiently in the allocation of resources is related to the study of welfare economics. It involves the study of efficiency in consumption, efficiency in production and overall welfare.