15 Importance and Limitations of Microeconomics (Explained)

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

importance and limitations of microeconomics
importance and limitations of microeconomics

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.

Related: 7 Scope and Types of Microeconomics Analysis (With Examples).

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.

Related: 7 Limitations and Types of Macroeconomic Analysis (Explained).

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.

Related: 16 Factors Responsible for Rapid Growth of Sales Promotion.

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.

limitations of microeconomics
limitations of microeconomics

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.

Related: 17 Importance and Role of Small-Scale Industries (Economy).

4. Some Economic Problems cannot be Studied through Microeconomics

Macroeconomics is not appropriate for analyzing the effects of government revenue.

International trade, monetary and fiscal policy economics planning.

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.

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