Limitations of Microeconomics |Microeconomics | Management Notes
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:
Limitations of Microeconomics
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
The microeconomic analysis is based on many unrealistic assumptions like the 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 the economy.
Ignores the role of the government
As microeconomic theories believe in the existence of a 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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