The importance of microeconomics in the modern economic system is limited because it provides a solution to individual problems only. Its scope of the study is limited and it is a part of the macroeconomic analysis
From the above discussion, it is clear that microeconomics is an important branch of economic analysis.
Importance of Microeconomics
Following are the major importance of microeconomics:
1. Helpful to Study Economic Problem
Through the study of individual units separately, microeconomics make easy to study the whole economy.
Because construction of the whole economy is done by the combination of individual units.
2. Complementary of Macroeconomics
Microeconomics studies individual action and behavior.
Analysis of the whole economy becomes easy on the basis of individual savings, Individual investment and individual expenses.
So, Microeconomics helps in the macro analysis.
3. Management of Business Enterprises
These days, with the help of microeconomics business manager, take important managerial decisions.
In decision making knowledge of microeconomics is very helpful.
4. Analysis of Problems and their Solution
In microeconomics study of the problem of the individual economic unit is done and by examination and analysis these problems the solution is found.
5. Helpful in Analysing the Problems of Taxation
By studying the effects of different types of taxes with the help of microeconomics, it can be known that which tax is proper to impose and which tax is not.
6. Important for Managers
The knowledge of microeconomics helps managers in maximizing the profit by analyzing demand and supply of commodity cost and revenue etc.
7. Helpful in Factor Price Determination of Services and Commodities
With the help of microeconomics, the price determination of any commodity is done by demand and supply of that commodity under different conditions of the market.
8. Helpful in Factor Price Determination
The price of rent, interest, wages, salary, etc. of different factors of production land, capital, labor, entrepreneur, and Organisation is determined with the help of microeconomics.
9. Helpful in Explaining the Flow of Goods and Services
Microeconomics explains the flow of factors of production from household two firms and then the flow of goods and services from firms to the household.
10. Useful In Formulation of Economic Policies
Microeconomics is helpful in the formulation, analysis, and valuation of economic policies.
Limitations of Microeconomics
Microeconomics is very helpful in the economic analysis but it has some limitations:
1. Lack of Knowledge of the Whole Economy
With the help of microeconomics knowledge of the whole economy cannot be done because in it only individual units studied.
2. Not Appropriate for the whole Economy
Conclusions and results taken with the help of Microeconomics are not appropriate for the whole economy like- saving is appropriate for the individual, but if all peoples of the country together save them it has a bad effect on the Economy.
3. Based on Unrealistic Assumptions
Microeconomics is based on unrealistic assumptions like fill employment, perfect competition, self-interest.
4. Some Economic Problems cannot be Studied through Microeconomics
Macroeconomics is not appropriate for analyzing the effects of government revenue.
5. Less Importance
In present, the importance of analysis and study were done on a small level is decreasing.
Because in place of the individual, the importance of society and groups in increasing.
Thus, now you know the importance and limitations of microeconomics.