Importance and usefulness of Micro Economics :

Importance and usefulness of Micro Economics :

1.       To understand the working of free market economy
Micro economic theory helps in understanding the working of free market economy.

2.       Explains price determination & allocation of resources
It explains how the relative prices of various products & factors are determined and further explains why prices of these various products & factors are found different.

Also it explains the process of allocation of resources for the production of various goods & allocation of total production among the various consumers.

3.       It helps businessman in decision making
The knowledge of price theory is useful to businessman in deciding policies regarding the prices, cost of production, investment, attainment of maximum productivity etc. Also, with the-help of Micro Economics the businessman can estimate demand for his product.

4.       Useful to government
It is useful to government in framing economic policies, Micro Economic analysis is useful in determining tax policy, public expenditure policy, price policy, efficient allocation of resources etc.

5.       Helpful in international trade & public finance
Many aspects of international trade like effects of tariff determination of exchange rate, gains from international trade etc. can be explained with the help of micro economic analysis. It is useful in public finance to analyse incidence and effect of particular tax.

6.       Model Building
Micro Economics builds simple model which helps us in understanding complex economic situations. Development of various terms, concepts, terminologies, tools of economic analysis is valuable contribution of Micro Economics to the science of economics.

7.       Basis of welfare economics

Micro Economics examines the conditions of economic welfare. It explains how best results can be obtained through avoidance of wastage of resources.