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AMITY LAW SCHOOL

B.Com LLBII SEMESTER

MICRO ECONOMIC THEORY

AND MANAGEMENT

Ms.CHETNA NEGI

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MICRO ECONOMIC THEORY AND

MANAGEMENT

Module I: Nature and Scope of Economics

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Introduction In the recent years, the subject-

matter of economics has been divided

into two branches: Micro and Macroeconomics. These terms wereintroduced by Prof.Ragnar Frisch ofOslo university in 1933.

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Meaning and Definition of MicroEconomics.

The term micro' has been derived fromthe Greek word Mikros. Which meanssmall. Thus, micro economics is the

study of individual units of economysuch as individual consumers, individualfirms and small groups of individualunits such as various industries.

Thus according to K.E.Boulding, Micro

economics is the study of particularfirms, particular households, individualprices, wages, incomes, individualindustries, particular commodities.

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IMPORTANCE OF

MICROECONOMICS

It is an important method of

economic analysis whichProf.Keynes regards as anecessary part of onesapparatus of thought.

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1. Helpful in the efficient

employment of resources.2. Helpful in Price Determination

3. Helpful in understanding the

whole economy.4. Helpful in the formulation ofeconomic policies ofgovernment.

5. Helpful in decision making of anindividual.

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Limitation of Micro Economics

Based on impractical assumptions-Micro economics is based on certainassumptions like full employment &

perfect competition etc. Theseassumptions do not hold true in reallife.

It does not provide real picture ofthe whole economy-

Results of Micro analysis do notapply on the whole economy-

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DIFFERENCE BETWEEN

MICROECONOMICS AND MACROECONOMICS

1.The objectives of micro economicson demand side is to maximiseutility and on supply side is to

maximise profits. Whereas, the mainobjective of macroeconomics are fullemployment, price stability,

economic growth .

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2.The basis of microeconomics is the

price mechanism which operateswith the help of demand and supplyforces. whereas the basis of

macroeconomics is national income,output and employment which aredetermined by aggregate demandand aggregate supply.

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3.Micro economics is based on the

assumption of rational behavior ofindividuals. Whereasmacroeconomics bases its

assumptions on such variables asthe aggregate vol. of the outputof an economy,etc.

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4.Micro economics is based onthe partial equilibrium

whereas macro economics isbased on general equilibrium.

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5.Micro economics is suitable to studythe problems of individual economic

units. Whereas macro economics issuitable for the problems of economyas a whole.