word micro means a millionth part. When we speak of micro economics we mean a
small part of whole economy that we are analyzing or in micro economic we
analyze the units e.g. firm, a consumer or an industry.
Inother words we study an individual decision making units. For example will
studying price we don’t study the general price level instead we discuss price
of a particular commodity. While studying rewards of factors of production, we
study rewards of F.O.P in a particular industry and so we study individual
saving, investment, income, employment, demand and supply and not the aggregate
savings, investment, national income, general employment, aggregate demand and
aggregate supply.
While
studying micro economics it is assumed that there is full employment in the
economy and average price level is fixed and hence, the problem left with it is
what to produce, how to produce, how much to produce and or whom to produce.
Problems
of Micro Economics
In
micro economics following problems are discussed:
Consumption
Theory
We
study the behavior of the consumer i.e. why people purchase consumer goods,
what is their aim both in utility and indifference analysis.
Production
Theory
In
this part of study we discuss how goods and services are produced and how
factors of production are combined to gather. What is the cost of production
and how it can be minimized?
Price
Theory
In
price theory problems of determination of relatives prices of goods and
services are studied. The affects of price mechanism affects the allocation of
resources consumption pattern, investment direction, choice of method of
production, foreign trade and distribution of nation income.
Distribution
Theory
In
distribution we study marginal productivity theory, rent, wages, profits and
interests.
De-Merits
of Micro Economics
1. In
free economy there are always problems of depression, over production and price
fluctuations, so there is no stability in economy.
2.
. Some results are
beneficial at individual level but bad at national level e.g.
- Increase
in profits due to increase in price in treated good but general increase in
price level produced inflation in the economy. - A
produce can increase its profits by reduction in wage rate but if wage out
policy is adopted in the country, it decreases the purchasing power, which in
turn will decrease the demand, investment and creates unemployment. - Increase in personal savings looks good, but if major portion of
income saved is not further invested it brings depression. Increase in monetary
savings is not beneficial because it will not bring economic development. - Increase
in consumption at individual level is not treated well but if consumption expenditure decreases in the economy rate of investment goes down and as a
result there is unemployment in the economy.
