Importance 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.The major importance of microeconomics are as follows:
- Helpful in business decision-making: Microeconomics plays an important role in business decision making.It guides the business managers in optimal resource utilization, demand analysis , cost analysis, optimal production decision and pricing policy.
- Helpful to understand the working of the economy: Microeconomics is helpful to understand the working of the economy as it explains the functioning of a free enterprise economy. It tells us how millions of consumers and producers in an economy take decisions about the allocation of productive resources among millions of goods and services.
- Helpful to formulate economic policies: Microeconomic tools are useful in designing price policy, taxation policy and others in an economy dominated by the public sector. It is also useful in designing prices of public utilities in an economy.
- Helpful in formulating sectoral policies: There are different sectors such as industry, tourism, trade, and others. An understanding each of these sectors is imperative before an appropriate policy is designed for them.
Microeconomics provides a useful tool to the government while making sectoral decisions.
- Helpful in an efficient allocation of resources: Microeconomics efficiently allocates the resources. Microeconomic theory explains condition of efficiency in both consumption and production that ensures maximum social welfare.
- Helpful in the Study of human behaviour: Microeconomics studies many diminishing forms of human behaviour with the help of the law of diminishing marginal utility, equi-marginal utility, indifference curve and revealed preference theory.