Microeconomics make, what factors influence their choices

Microeconomics is the study of individuals, households and firms’ behavior in decision making and allocation of resources. It generally applies to markets of goods and services, deals with individual and economics issues. Microeconomics also study deals with what choices people make, what factors influence their choices and how their decisions affect the goods markets by affecting the price, the supply and the demand.

(The Economic Times) In other words, in microeconomics we make a microscopic study of the economy. But it should be remembered that microeconomics does not study the economy in its totality. Instead, in microeconomics we discuss equilibrium unit of the economy and their inter-relationship to each other. Futhermore, in microeconomics analysis we also study the demand of an individual consumer for a good as I mentioned in the above. Microeconomics also studies the behaviour of the individual firms in order to fixation of the price and output and their reactions to the changes in the demand and supply. However, microeconomics it does not only study the totality of behaviour. It also study economic system or economy as a whole lies outside the domain of microeconomics.

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The advantages of Microeconomics is to improvements in the productivity of individual firms due to investments in transportation infrastructure. Depending on market structure, the benefits may accrue to firms themselves as increased profit, be passed along to consumers as lower process, or some combination of the two. Second is, microeconomics helps in explaining and fixing international trade and tariff riles, causes of disequilibrium in balance of payments, effects of factors deciding exchange rates impact of tariffs on price. It could explains and analysis how a country can gain from international trade. It is not only analyses economic conditions but also studies social needs under different market condition.

Microeconomics also explains how maximum social welfare can be achieved under perfect competition. In addition, microeconomics also helps the government in fixing the tax rate and the type of tax as well as the amount of tax to be charge on the buyer and the seller. The disadvantages of microeconomics is Inadequate Data. Which means, microeconomics is based on the information dealing with individual behaviour, and individual customers. Hence, it is difficult to get correct information.

So because of the incorrect data, microeconomics may provide inaccurate results. Last but not least, unrealistic assumptions. Microeconomics is based on unrealistic assumptions especially in case of full employment assumption which does not exist practically even behaviour of one individual can not be generalized as the behaviour of all. (Gaurav Akrani, 2010)


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