Meaning and Features of Microeconomics
Economics is broadly divided into two parts 1) Microeconomics and 2) Macroeconomics. Following is a brief description of the micro concept of economics.
Meaning of Microeconomics
Meaning of microeconomics – Microeconomics is that branch of economics which studies economic problem (or economic issues) relating to individual economic units like a consumer, or a producer. Example: Theory of consumer behavior, Problem of resource allocation.
Micro means small. Microeconomics deals with economic issues related to small economic units (i) an individual consumer, (ii) an individual producer (iii) an individual firm (iv) an individual industry and (v) an individual market.
1) A Consumer is an important economic unit in the context of microeconomics. He faces the problem of choice (the problem of rational management of resources). He is to use his resource (income) on the purchase of different goods in a manner such that he is able to maximize its satisfaction. For this purpose, Microeconomics formulated the- Theory of consumer behavior or Theory of demand. It is an important component of microeconomics.
2) A Producer is another important economic unit in the context of microeconomics. He also faces the problem of choice. He is to choose the commodity he should produce so that his profits are maximized. Also, he is to choose the technology that minimizes his cost for the production of a commodity. To study the behavior of a producer, economists have developed the Theory of supply. This is another important component of microeconomics.
[meaning of microeconomics]
Vital Components of Microeconomics –
- a) Theory of Consumer Behavior – It analyses how a consumer allocates his income to different uses so that he maximizes his satisfaction.
- b) Theory of Producer Behavior – It analyses how a producer decides what to produce and how much. The producer focuses on the maximization of profit.
- c) Theory of Price – It studies how the price of goods are determined in the market. Of these, the theory of price is the most important component of microeconomics. So much, that the economists open identify microeconomics with the Theory of Price.
Features of Microeconomics
Given below are the main features of microeconomics –
- 1) Microeconomics deals with economic issues related to small economic units: an individual firm, and individual household or an individual consumer.
- 2) Microeconomics is basically concerned with the determination of price in the market. Accordingly, it is often called as the Theory of Price.
- 3) Study of microeconomics assumes that macro variables remain constant. Thus, it is assumed that the general price level is constant, while we are studying the determination of price in the individual market.
- 4) Principal components of microeconomics are a) Theory of Consumer Behavior, b) Theory of Producer Behavior, c) Theory of Price.
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