Other economists like Prof. Pigou, J.R.Hicks, Prof.

Samuelson,
Mrs. Joan Robinson also contributed to the development

deals with a small part of the national economy.

individual consumer, individual producer or a firm, the price of

studies the economic actions and behaviour of individual units a particular commodity or a factor etc.

Greek word: Mikros = small / millionth part

Micro
Traditional approach

Era of classical economists: Adam smith, David Ricardo, J. S

Mill

Popularised by neo-classical economist : Prof. Alfred Marshall His book: Principles of economics - 1890

explains how the prices of different products and various

Price Determination factors of production are determined

Free market economy is:where the economic decisions

regarding production of goods, such as ‘What to produce?,
How much to produce?, How to produce? etc.’ are taken at
individual levels

Free Market Economy helps in understanding the working of a free market economy
There is no intervention by the Government or any other
agency

explains various aspects of foreign trade like effects of tariff on

a particular commodity, determination of currency exchange
rates of any two countries, gains from international trade to a
particular country etc.
Foreign Trade

helps in understanding various complex economic situations

with the help of economic models
Coined by: Norwegian Economist Ragnar Frisch of Oslo union 1933

Importance of Micro Economics : Economic Model Building

valuable contribution to economics by developing various
terms, concepts, terminologies, tools of economic analysis etc

Economic models are built using various economic variables.

helpful to businessmen for taking crucial business decisions

Business Decisions related to the determination of cost of production,

determination of prices of goods, maximization of output and
profit, etc.

These policies help government to attain its goals of efficient

allocation of resources and promoting economic welfare of the
Useful in framing economic policies such as taxation policy, society.
Useful to Government public expenditure policy, price policy etc.

explains how best results can be obtained through optimum

utilization of resources and its best allocation
Basis of Welfare Economics
studies how taxes affect social welfare.

Study of Individual Units study of the behaviour of small individual economic units E.g: individual firm, individual price, individual household

Determination of the prices of goods, services and factors of

Price Theory production

analyses equilibrium position of an individual economic unit

isolates an individual unit from other forces

Partial Equilibrium

studies its equilibrium independently.

Other things remaining constant

Meaning: With other conditions remaining the same;

Ceteris Paribus other things being equal

5 Macro Modern economics Based on Certain Assumptions

Such as, perfect competition, laissez-faire policy, pure laissez-faire policy: the policy of leaving things to take their
capitalism, full employment own course without interfering

makes the analysis simple

splits or divides the whole economy into small individual units

Features of Micro Economics:

then studies each unit separately in detail

Slicing Method

E.g: 1.individual income out of national income

2. study of individual demand out of aggregate demand

key tool of micro economic analysis

marginal' means change brought in total by an additional unit

Use of Marginalism Principle Marginal analysis helps to study a variable through the
changes

Producers and consumers take economic decisions using this

principle

analyses different market structures such as Perfect

Competition, Monopoly, Monopolistic Competition, Oligopoly
Analysis of Market Structure etc.

limited to only individual units

Limited Scope doesn’t deal with the nationwide economic problems such as
inflation, deflation, balance of payments, poverty,
unemployment, population, economic growth etc.

Demand Analysis individual consumer behaviour

Theory of Product Pricing

individual producer behaviour.
Supply Analysis

Rent Land

Wages Labour
Micro economic theory shows under what conditions thes
Theory of Factor Pricing factors that contribute to the production process efficiencies are achieved.

Interest Interest Main focus:

1. Price Theo
Scope of Micro Economics
2. Resource allocation
Profit Entrepreneur
Does not study:
1. aggregates relating to the whole economy.
2.national economic problems such as unemployment,
efficiency in the allocation of resources: attained when it
poverty, inequality of income, Theory of growth, theory o
results in maximization of satisfaction of the people.
business cycles, monetary and fiscal policies

producing maximum possible amount of goods and services

Efficiency in Production from the given amount of resources.

Theory of Economic Welfare

distribution of produced goods and services among the people
Efficiency in Consumption to maximize total satisfaction

production of those goods which are most desired by the

Overall Economic Efficiency people.

Maurice Dobb Micro economics is in fact a microscopic study of the economy

how the millions of cells in the body of economy

Definitions of Micro Eco :
Micro economics consists of looking at the economy through a
Prof A. P. Lerner microscope individuals or households as consumers and individuals or
firms as producers play their part in the working of the whole
economic organism