The word Micro was derived from the Latin word ‘Mikros’ which means small.
Micro economics is that branch of economics which deals with the small units of economics, like individual income, saving, consumption etc.
The study of small or individual economic activities is the microeconomics.
It is also known as price theory or value theory because it studies about price determination process of individual firms, individual industries and pricing of factor of production.
Microeconomic theories make the assumptions of, other things remaining same, full employment of resources and short term analysis.
According to K.E. Boulding, “Microeconomics is the study of particular firms, particular households, individual prices, wages, income, individual industries and particular commodities.”
Features or characteristics of microeconomics
(a) It is individualistic economics.
(b) It is concerned with individual economics activities like particular households, individual income, wage, firms etc.
(c) It assumes to be full employment equilibrium in the economy.
(d) Assumptions are made in microeconomics theories; it means it is based on partial equilibrium analysis.
(e) It is based under market economy where price plays a central role.
(f) It is known as price theory or value theory.
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In the study of economic theory micro economics occupies a great important role; following are the main importance of micro economics:
Micro economics explains the working of a free economy.
It tells us how millions of consumers and producers in an economy take decision about allocation of productive resources among millions of goods and services.
Micro economics provides different analytical tools to evaluate economic policies like pricing policy, tax policy of the government.
Market mechanism is the main tools which helps us in this respect.
The main problem faced by modern government is the efficient allocation of resources among different alternatives.
Micro economics helps to allocate an economising scarce resource efficiently.
Micro economics help to the business man in the achievement of maximum productivity with the help of available resources.
Producer will be able to know consumers quantity demand and then calculate cost of production and revenue.
Helpful in international trade
Micro economics is used to explain profit or loss from trade. It also explains balance of payment, determination of foreign exchange rate in the field of international trade.
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