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Microeconomics is the branch of economics that deals with the study of how individual households and firms make decisions and how they interact
in markets. Microeconomics studies principles, problems, and policies concerning the optimum allocation of resources with maximum satisfaction.
Microeconomics plays a very important role in the study of economic theory. The major importance of microeconomics are as follows:
Importance of Microeconomics
Table of Contents
1. Importance of Microeconomics
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Microeconomics plays an important role in the business decision-making process. It guides the business managers in optimal resource utilization,
demand analysis, cost analysis, optimal production decision, and pricing policy.
Microeconomics is helpful to understand the working of the economy as it explains the functioning of a free enterprise economy. It tells us how
millions of consumers and producers in an economy take decisions about the allocation of productive resources among millions of goods and
services.
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Microeconomic tools are useful in designing price policy, taxation policy, and others in an economy dominated by the public sector. It is also useful
in designing the prices of public utilities in an economy.
There are different sectors such as industry, tourism, trade, and others. An understanding of each of these sectors is imperative before an appropriate
policy is designed for them.
Microeconomics provides a useful tool for the government while making sectoral decisions.
Microeconomics efficiently allocates the resources. The microeconomic theory explains the condition of efficiency in both consumption and
production that ensures maximum social welfare.
Microeconomics studies many diminishing forms of human behavior with the help of the law of diminishing marginal utility, equi-marginal utility,
indifference curve and revealed preference theory.
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