Write a short note on the importance of micro economics?
Micro economics is a branch of economics that is concerned with the analysis of the behaviour of an individual economic unit or variable. Micro economics plays a vital role in the study of modern economic theory.
The following points explain the importance of micro economics:
- Price Determination: It explains how prices of individual commodities are determined and how rewards of factors of production are determined and distributed.
- Business Decision Making: Micro economic theory help businessman to determine their price policy, a maximum level of output, and achievement of maximum productivity from factors combination.
- Business and Production planning: Micro economic policy helps in preparing and planning of business policy, expansion of business, and making investment decisions to achieve maximum output and productivity.
- Helps in International Trade: Micro economics is used to explain gains from internal trade, external trade, foreign exchange, the balance of payment, disequilibrium, and in the determination of exchange rate.
- Basis of welfare economics: The entire structure of micro economics has been built on the basis of price theory which is an important constituent of micro economics. It suggests the conditions of efficiency and explains how it can be achieved. It helps in improving the standard of living of the population.
- Required by the government: Micro economics is useful to the government in framing economic policies such as taxation policy, public expenditure policy, price policy, etc. These policies help the government to attain its goals of efficient allocation of resources and economic welfare of the society.
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