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Limitations of Microeconomics – Microeconomics | Management Notes

Limitations of Microeconomics

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:

  1. Wrong conclusions
  2. Static
  3. Unrealistic assumptions
  4. Limited scope
  5. Ignores the role of the government

a) Wrong conclusions

According to the viewpoint of macroeconomics, the conclusions drawn from the study of microeconomics in many cases are not valid.Microeconomics has often been proven to be misleading in many ways. Due to its focus on the individual, what is applicable to an individual may not be applicable to economies. The economic approach involves many generalizations and inferences based on certain circumstances and conditions. Often, these generalizations lead to a misunderstanding of the economic situation. As a result, wrong conclusions are drawn.

b) 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.A static situation is one that is not moving in economics. However, this movement is constant, sure, regular, and continuous. Economic statics do not address the unpredictable. It only examines the expected economic activities. Economic activity does not fluctuate due to windfall changes or windfall changes.

In static analysis, unreal assumptions are utilized such as perfect competition, perfect mobility, perfect knowledge, and full employment. None of these assumptions is realistic. Therefore, Prof. Hicks said, “Stationary states are nothing more than evasions.”

c) 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. According to some assumptions, microeconomic laws apply to macroeconomic laws as well, but this is not necessarily true, since what is appropriate for a single concern is not necessarily appropriate for the whole economy.

For example, if someone from a country gets hired at a high level of employment, a person and a country will benefit from it, but if everyone in that country gets hired at high levels, then it would turn into a curse to the murky.”. This occurs because, if even a small activity of daily life is hindered, it will affect a whole country, for example, a country without sweepers would be a dustbin.

d) 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.Comparatively to economics as a whole, this branch of economics has a very narrow and limited scope. When it comes to observing and justifying the functioning of the entire economy, it is inadequate. This makes it unreliable in the process of making economic decisions.

e) 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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