Micro Economics – Importance and Limitations

Introduction to Micro Economics

In the present times, the study of economics is done from two viewpoints namely Micro and Macro. From the first viewpoint, the economic problems of various units, like – individuals, families, firms etc. are studied individually, whereas; from the second viewpoint, the same units of persons, families, firms etc., are studied in a combined form. Micro Economics is concerned with a specific, particular or an individual whereas; Macro Economics is concerned with a group.


The word micro means very small portion. From this point of view, micro economics is the study of specific economics units of the whole economy. Under this, a commodity, a consumer, a firm or an industry is studied individually.


According to Kenneth E. Boulding,

In micro economics, particular firms, particular families, individual prices, wages, incomes, particular industries and specific commodities are studied.

Historical Background

Prof. Adam Smith is called the father of micro economics but its development was done by Prof. Alfred Marshall and his companions.

Importance and Merits of Micro Economics

  1. Correct knowledge of the nature of individual units

    It makes analytical study of individual units, which helps in understanding the nature of economics.

  2. Helpful in the determination of economic policies

    It provides significant contribution in the determination of individual economic policies.

  3. Helpful in solving economic problems

    It helps in providing solutions to the economic problems of individual units by studying their economic nature.

Limitations and Demerits of Micro Economics

  1. Ignore the whole

    It ignores the whole economy and studies only the small parts of the economy. Due to this, it does not represent the correct form of the whole economy.

  2. Unsuitable in many areas

    There are many areas of economic analysis, where the use of micro economics is unsuitable. In the fields like, international trade, national income, national savings, nation -investments etc. There is limited use micro economics.

  3. Unrealistic assumption

    The assumption that the laws of micro economics are also applicable on macro-economics is not correct because it is not necessary that what is appropriate for an individual concern is also appropriate for the whole economy. For example, by the point of view of an employment, it is good for a person and a country that a person of that country is employed at a high post but if each individual of that country is employed at high posts, then it would become a curse for the murky. This is because if even a small activity of daily life is hindered, it would disturb the whole country, like; lack of sweeper in a country would make that country a dust-bin.

How are Micro and Macro Economics different?

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