Put text here

The two words mean a millionth part. When we speak of microeconomics we mean a mall part of whole economy that we are analyzing or in microeconomics we analyze the units e.g., a firm, a consumer or an industry. In other words we study a general price level instead we discuss price of a particular commodity. While studying rewards of factors of production, savings, investment, income, employment, demand and supply and not the aggregate savings, investment, national income, general employment, aggregate demand and aggregate supply.

While Studying micro economics it is assumed that there is full employment in the economy and average price level is fixed and hence, the problem left with us is what to produce, how to produce, how much to produce and for whom to produce.
Following problems are discussed and studied in microeconomics:

1. Consumption Theory:
We study the behavior of the consumers i.e., why people purchase consumer goods, what is their aim both in utility and indifference curve analysis.

2- Production Theory:
In production theory we discuss how goods and services are produces and how factors of production are combined together. What is the cost of production and how it can be minimized?

3- Price Theory:
Problems of determination of prices of goods and services are studied in price theory. The effects of price mechanism, affects the allocation of resource, consumption pattern, investment direction, choice of method of production etc.

4- Distribution Theory:
In Distribution Theory we study pricing of factors of production, Determination of rent, wages, profits and interest i.e., how rewards of factors of production are distributed in an industrial unit.

Merits of Microeconomics:
Following are the merits of study of microeconomics

(i)- Individual Decisions:
Microeconomics is helpful for analyzing individual decision making unit e.g. households and firms.

(ii)- Rational Choices:
Study of microeconomics is useful for making rational decisions regarding maximization of satisfaction by consumer and maximization of profits by the producers.

(iii). Helps in Understanding Macro Economics:

Macroeconomics is nothing but the addition of individual behavior as a society is composed of individual, macroeconomics is composed of microeconomics. Therefore, study of microeconomics means study of macroeconomics as a whole.

Demerits of Micro Economics:

1. In free economy there are always problems of depression, over production and price fluctuations, so there is no stability in economy and there problems are not studied at micro level

2. Some results are beneficial at individual level but are worse at national level e.g.
• Increase in profits due to increase in price is treated good for producer but general increase in price level produces inflation in economy which is harmful.

• A producer can increase its profit by reduction in wage rate but if wage cut policy is adopted in the country it decreases the purchasing power, which in turn will decrease the demand for investment and creates unemployment.

• Increase in Personal savings looks good, but if major portion of income saved is not further invested it brings depression. Increase in monetary savings is not beneficial because it will not bring economic development.

• Increase in consumption at individual level is not treated good but if consumption expenditure decrease beyond a certain level in the economy rate of investment goes down and therefore, unemployment increases in an economy