March 05, 2019

Limitations Of Microeconomics

Introduction

Microeconomics refers to the branch of economics that studies and analyze the behavior and decision making of individuals and businesses. It examines how they make decision regarding allocating the limited resources to meet their needs and expectations. It studies supply and demand, elasticity of demand, consumer behavior etc. There are several advantages of microeconomics such as optimum employment of available resources, setting price of the products, helpful in decision making, understanding individual and business behavior etc. But in this post we are going to discuss some major drawbacks or disadvantages of microeconomics.

Major Limitations of Microeconomics

The main disadvantages or limitations of microeconomics can be highlighted as follows:

1. Unrealistic Assumptions

Microeconomics is based on some assumptions such as laissez economy, perfect competition and full employment which are unrealistic.

2. Incomplete Study

It is only the study of economic behavior of individual or unit which does not provide complete picture of whole economy.

3. No Aggregate Analysis

Microeconomics lacks aggregate analysis of employment, fiscal and monetary policy which are very important to study national economy.

4. Limited Scope

Scope of microeconomics is limited or narrow while comparing to macroeconomics.

   
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5. Static Analysis

It is based on the static analysis where variables are supposed to be constant. So, it may lead to wrong conclusion.

6. Less Reliable

Because of false assumptions, incomplete study and static analysis, it is less reliable than macroeconomics.

Pros And Cons Of Microeconomics In Short

Pros:

* It helps to make proper business decisions
* It provides detailed analysis of individuals and business behavior
* It is useful for the government to make financial plans and policies
* It is helpful in fixing the price of products/services
* It promotes optimum utilization of resources

Cons:

* It is based on unrealistic assumptions
* It has limited scope because it gives focus on individual units.
* It does not reflect the whole economy
* It is difficult to collect accurate data of individuals
* It gives focus on efficiency but neglects fair distribution of resources