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The branch of economics that analyzes market behavior of the individual consumers and the firms in an attempt to understand decision-making process of the firms and the households. It is concerned with interaction between the individual buyers and the sellers and the factors that influence choices made by the buyers and the sellers. In particular, the microeconomics focuses on the patterns of supply and demand and determination of the price and the output in individual markets. Microeconomics has a role in the society as well as in economy of an area. This field of study allows the economists to determine not only patterns of the businesses, consumers and the other organizations that are spending money but also factors that are affecting the spending habits and the production decisions. The Microeconomics involves studying concepts and the ideas that establish the supply and demand in a particular market and the way that consumers and the businesses alike the prioritize their spending.

Essentially, role of the microeconomics is to determine how, when combined, the small economic components are affecting broader economy. Instead of looking at the market indicators that represent a wide field of the data, however, this type of study considers how households, individuals or the specific markets are responding to the markets. Although this economic approach does not necessarily determine the economic conditions, process offers insight into the way that the consumers and the businesses alike decide value of a particular service or product. This is expressed in amount of the resources that either consumer or the business dedicates to an item.


Microeconomics as has been declared by those who have studied Latin know that prefix "micro-" means "small," so it should not be surprising that the microeconomics is study of the small economic units. As referred to the book on Understanding Economics Third Edition, the microeconomics is a study in the economic activities and decision-making of an individual like a buyer, seller or consumer, a government unit or level firm or producer. This study is concerned about demand and supply of the particular goods and services and the resources such as clothes, cars and the computers. At same time, it can determine the aspects which influence the individual economic choices and how choices from the various decision makers are organized by the markets. To further understanding of the microeconomics, here are a few importance of the microeconomics study. First of all, it leads to get a better understanding working of the economy. This study totally gives the bird's eye view of economic world as it gives the understanding of economic works as a whole. This study covers each single aspect which is related to economic issues. It helps in understanding how macroeconomic variables behave in the aggregate. For example, study of national income, employment, aggregate output and the national expenditure is very essential to understand working of economy. Second, microeconomics is totally important in the consumer decision-making process. Business draws upon the microeconomic data to make several of the critical choices, any one of which could mean success or failure of their business.


The function of microeconomic theory studies the economic behavior of consumers, resource owners and business firms, who individually can play a decision-making role in the free market economy.

Microeconomic theory is called price theory due to its functional nature related to individual business activities of households and the firms, which studies circular flow of goods and services from household to the business firm. The theory analyzes composition of such a flow and way of price determination of the goods and services as well as price of resources used.


The scope of Microeconomics is concerned with the following:-

1. Commodity Pricing: - The Prices of individual commodities are determined by the market forces of demand and the supply. So micro economics makes the demand analysis and supply analysis.

2. Factor Pricing: - Labor, land, entrepreneur and capital, the all factors contribute in the production process. So they get the rewards in form of rent, interest, wages and the profit respectively. Microeconomics deals with the determination of such rewards i.e. the factor prices. So micro economics is also called as 'Value Theory' or 'Price Theory'.

3. Welfare Theory:- The Microeconomics deals with the optimum allocation of available resources and the maximization of social welfare. It provides the answers for 'What to produce?', 'How to produce?', 'When to produce?' and 'For whom it is to be produced?'. In short, the Microeconomics guides for the utilizing scarce resources of the economy to maximize the public welfare.


The Microeconomics, like the other social science, does not provide the ready-made solution for the practical problems. It provides only the tools and the techniques of solving the real life problems. The Microeconomics has certain limitations which restrict its applicability. Most of the limitations of the microeconomics theories occur from assumptions on which they are based.


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