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Micro economics | Introduction merits demerits |


types of economics
types of economics
types of economics

MICRO ECONOMICS


INTRODUCTION:-

In the beginning, there was only one economics. After the great depression of 1930`s they become two,
·       Micro Economics
·       Macro Economics
In micro economics we study the economics system by parts where in macroeconomics we study as whole. “Micro Economics” is also called as “Price Theory” where as macroeconomics is called “hypothesis of pay& employment”.

DEFINITION OF ECONOMICS:-

According to Robbins

          “Economics is the science which studies human behaviour as a relationship between multiple ends (unlimited wants) and scares means (limited resources) which have alternative uses.”

Micro Economics:-

 Micro economics is defined as,
          “Micro economics theory studies the economic behaviour of individual decision making unit such as the consumer, resources owners (producers) and business firm in an economy.”

Main parts of micro economics:-

          Fallowing are the main parts of micro economics.

1.    Production of wealth:-

Production means the production of goods and services with the help
of four factors of production. They are land, labour, capital and organisation.

                               i.            Land:-

All the natural resources which are used in the process of production are land. It is a gift of nature i.e. soil, forest, mountains, mineral deposits, rivers etc.

                            ii.            Labour:-

Human efforts, physical or mental done for the sake of rewards. It is the services of the labour which are bought and sold in the market not the labour itself.

                          iii.            Capital:-

Manmade resources which can assist in type process of production i.e. cash, machinery, building, roads etc. these are two types of capital
·       money capital
·       real capital

                          iv.            Organization:-

The act of combining the factors of production is known as organization.

2.    Exchange of wealth:-

Producers usually produce more goods and services then their own
requirements surplus production will be exchanged in the market with the surplus goods and services produced by others. This process enables everyone in the society to satisfy their multiple wants.

3.    Distribution of wealth:-

When producers sell their manufactured goods in the market and get
revenue, then this amount will be distributed among four factors of production as their rewards.
                                 i.            land gets rent
                               ii.            labour gets wages
                            iii.            capital gets interested
                            iv.            organization get profit

4. Consumption of wealth:-

The ultimate objectives of the production, exchange and distribution
is consumption. People use their shares of income to satisfy their multiple wants. The process of deriving utility from goods and services is known as consumption of wealth.

          MERITS OF MICRO ECONOMICS:-

                    Fallowing are the merits of micro economics.

1. Individual Decision:-

Micro economics is helpful for analysing individual decision making units e.g. individual consumer an production unit.

2. Rational Decision:-

The study of micro economics is helpful for making rational decisions regarding maximization of satisfaction by the consumer and maximization of profit by the producer.

3. Helpful in understanding free market economy:-

The microeconomics helps us to understand the working of free market economy without central control.

4. Helpful in understanding macroeconomics concept:-

Macroeconomics is the addition of individual behaviour, as a society is composed of individual, so macro economics is composed of micro economics, and it is helpful for understanding macroeconomics.

Demerits of micro economics

Following are the demerits of micro economics.

1. Free market economy problems:-

In free enterprise economy, there are always problems of depression, over production and price fluctuation. There is no stability in the economy and these problems are studied at micro level.

2. Its study part of the economy:-

In micro economics, we study parts of the economy individually; we do not study the whole economy at a time.

3. Individual results:-

Some results are beneficial at micro level but not suitable at micro level/ national level, they are increase in prices, wage rate and purchasing power, personal saving, consumption rate.

a.  Increase in prices:-

Increase in profit due to increase in prices is treated well for producers, but general increase in the price level of product creates inflation in the economy.

b.  Wage rate and purchasing power:-

A producer can increase profit by reducing the wages, but due to this purchasing power of labour decrease, it fall the demand for investment and creates unemployment in the economy.

c.  Personal saving:-

Personal saving looks good but if major portion of incomes are saved, so investment decreases and its creates depression in the economy.

d.  Consumption rate:-

Decrease in consumption at individual level is treated well but if consumption expenditures decrease beyond a certain level in the economy, rate of investment goes down therefore unemployment increases.





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