Limitations of Microeconomics
Introduction to Microeconomics | Microeconomics
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Microeconomics is the branch of economics that deals with the study of how individual households and firms make decisions and how they interact in markets.Microeconomics studies principles, problems and policies concerning the optimum allocation of resources with maximum satisfaction.Microeconomics plays a very important role in the study of economic theory.Besides its importance it has certain limitations which are as follows:
- Wrong conclusions: According to the viewpoint of macroeconomics the conclusions drawn from the study of microeconomics in many cases are not valid.
- Static: Mostly static analysis is used in the study of microeconomics. In macroeconomics many economic variables are assumed to be constant which makes it unrealistic.
- Unrealistic assumptions: Microeconomic analysis is based on many unrealistic assumptions like existence of full employment and perfect competition in the economy which is not found in real life.
- Limited scope: Microeconomics has limited scope as it cannot study many important economic policies and problems like fiscal policy, monetary policy, inflation, unemployment, etc. which are very important in economy.
- Ignores the role of the government: As microeconomic theories believe in the existence of free enterprise system assume the existence of a free enterprise system in where market forces are assumed to play their role freely but there are certain rules and regulations of the government that are to be followed in the daily economic activities.
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