What Is The Importance And Limitations Of Micro Economics?

The importance of micro approach lies in the fact that it constitutes a method of individual analysis. It studies the interdependent relationship among the individual economic quantities such as the relationships between the variation in the price of commodity and the corresponding change that takes place in its consumption. A number of economic laws and theories which include the marginal concepts, the theory of consumer's behavior etc. have been conceived through it.

Further more, it helps the taxation authority to locate the incidence and visualize the impact of the tax proposal. It also provides deals, such as term of trade, to decide whether to increase or restrict trade activities with a particular country.

Again consumption level of the people in relation to different categories of goods and services can be easily ascertained on the basis of micro study and as such micro economics is helpful evaluating the economic welfare of the people.

Limitations

a) It can not give an idea of the functioning of the economy as a whole. An individual industry may be flourishing, where as the economy as a whole may be languishing.

b) It assumes full employment which is a rare phenomenon. It is, therefore, an unrealistic assumption.

The basic limitation of micro economics is that it deals with the individual economic condition of a single firm where as macro economics deals with the whole market. There are no other limitations as such but there are assumptions in all the micro economic theories that are mostly unrealistic and are not present in the real world. Please visit the following link to view all the assumptions in micro economic theories.
Microeconomics

Limitations of microeconomics:
It ignor to study the economy in aggregation which is very importance to judge the prosperity and development of a country for example if we study a single producing units and make development here it does not mean that the whole economy will get prosperity.
It assume that there will be full employment in the economy which is a rare phenomena and is not prevail in the economy permanently because economy may operate under full employment, above full employment or at the level of full employment.