THE RATIONALE OF MICROENOMICS TO THE DISCIPLINE OF COMMERCE

Microeconomics occupies a vital place in economics. Microeconomics studies the economic

actions and behavior of individual units and small groups of individual units. Kiustoyiannis, K
(1979) states that “Microeconomics consists of looking at the economy through a microscope, as
it were, to see how the millions of cells in the body economic-the individuals or households as
consumers, and the individuals or firms as producers play their part in the working of the whole
economic organism. Microeconomics is a branch of economics that studies the behavior of
individual units such as households, individuals and enterprises within the economy.
Microeconomics is distinct with the study of Macroeconomics, which studies the economy as a
whole entity (Ahuja, 2010). The discipline of commerce includes various business-related
subjects such as accounting, business economics, entrepreneurship, finance and financial
markets, information management, Labour relations, logistics management, supply chain
management, merchandising and trade (Economics Encyclopedia, 2021). Discussed below is the
rationale of microenomics to the discipline of commerce.

To begin with, the rationale of microenomics to the discipline of commerce is that it helps
understand the operation of an economy. Verma, K. N (2009) states that “it gives those
individuals, studying the discipline of commerce the knowledge of free enterprise economy as
microeconomics tells us how a free- market economy with its millions of consumers and
producers work to decide about the allocation of productive resources among the thousands of
goods and services”. Microeconomics helps the discipline of commerce as in making decisions
such as how much to produce, what to produce, for whom to produce and explains the conditions
of efficiency in both production and consumption (Ahuja, 2010)

Furthermore, the rationale of microenomics to the discipline of commerce is that it provides tools
for economic policies. Maddala, G. S. & Miller E (1989) states that “microeconomics is helpful
in the formulation of economic policies which promote the welfare of the masses as it helps to
ascertain the government policies on resource allocation and price. It helps to impose tax rates by
analyzing the demand and supply factors and also helps to examine the implications and
effectiveness of the government policies. The rationale of microeconomics to the discipline of
commerce on policies has been nicely stated by Professor Lerner (2016). He writes that
“microeconomic theory facilitates the understanding of what would be a hopelessly complicated
confusion of billions of facts by construction simplified models of behavior which are
sufficiently similar to the actual phenomena to be of help in understanding them. These models
at the same time enable the economists to explain the degree to which the actual phenomena
depart from certain ideal constructions that would most completely achieve individual and social
objectives”. They, thus, help not only to describe the actual economic situation in commerce and
suggest policies that would most successfully and most efficiently bring about desired results and
predict the outcomes of such policies and other events.

In addition, the rationale of microenomics to the discipline of commerce is that it helps in

efficient utilization of resources. Professor Lerner (2016) states that “microeconomics is helpful
in efficient management of available resources of a country as it is utilized to explain the gains
from international trade, balance of payment disequilibrium and determination of foreign
exchange rates”. It helps to make the rational decisions to both producers and consumers in an
economy. This means that Micro economics provide the way of efficient utilization of available
resources as a business economist can make conditional predictions and business
forecasts(Ahuja, 2010).

Furthermore, the rationale of microenomics to the discipline of commerce is that it helps to

examine the condition of economic welfare. Ahuja (2010) insist that “welfare economics is
related to the maximization of social welfare which is possible only under perfect competition”.
Microeconomic theory shows that welfare optimum of economic efficiency is achieved when
there prevails perfect competition in the product and factor markets. Perfect competition is said
to exist when there are so many sellers and buyers in the market that no individual seller or buyer
is in a position to influence the price of product or factor Departure from perfect competition
leads to a lower level of welfare, that is, involves loss of economic efficiency(Gravelle, H &
Rees, R, 2008). The rationale of microeconomics is that it helps in formulation of economic
policies which are meant for promoting economic welfare and efficiency in production and
makes important, useful policy recommendations to regulate monopoly so as to attain economic
efficiency or maximum welfare (Ahuja, 2010). For example, like monopoly, that is, when a large
buyer or a combination of buyer’s exercises control over the price also leads to the loss of
welfare and, therefore, needs to be controlled.

Finally, the rationale of microenomics to the discipline of commerce is that it is useful in

business decision making. Maddala, G. S. & Miller E (1989) states that the reason for
microeconomics is that it “helps business to achieve maximum production with the given amount
of resources as Business firms can make decisions in demand analysis, cost analysis and methods
of calculating prices and the limited resources of firms can be optimumly utilized by choosing
the best alternative which is possible with the help of microeconomics”. Microeconomics also
helps producers to select the highly efficient and least cost production techniques which provides
basis for predicting future course of events by analyzing the various factors such as demand and
supply (Verma, 2009). For example, it provides the technique of linear programming by which a
producer takes the numbers of important decisions. Linear programming also investigates the
best possible production process among the alternative production processes to attain the
maximum income. It is useful in price determination, known as factor and product pricing as
Prices are determined on the basis of demand and supply forces which are the main part of
microeconomics.

In summary discussed above was the rationale of microenomics to the discipline of commerce.
Microeconomics is a branch of economics that studies the behavior of individual units such as
households, individuals and enterprises within the economy. The discipline of commerce
includes various business-related subjects such as accounting, business economics,
entrepreneurship, finance and financial markets, information management, Labour relations,
logistics management, supply chain management, merchandising and trade. The rationale of
microenomics to the discipline of commerce is that it helps to understand the operation of an
economy, provides tools for economic policies, helps to examine the condition of economic
welfare, there is efficient utilization of resources and useful in business decision making.
REFERENCES

Ahuja. H.L (2010) “Advanced Economic Theory”, S. Chand & Company Ltd, New Delhi

ABBA P. Lerner (2016), The economics of control: “principles of welfare economics”, The
Macmillan Company, New York.

Hugh Gravelle & Ray Rees (2008), “Microeconomics”. 3rd ed, Pearson Education, Delhi.

Kiustoyiannis, K (1979), “Modern Microenomics”, second edition, Mcmillan Press Limited,

London.

Maddala, G. S. & Miller E (1989), ‘Microenomics: Theory and Applications’. Mcgraw Hill book
Co. New York

Varian H.R, (2011), “Intermediate Microenomics”, 9th Edition. New York and London

www.EconomicsEncyclopedia.com

www.insideEconomics.com

Verma, K. N (2009), “Micro Economic Theory”, Vishall Publishing Company, Jalandhar, Delhi.