Wednesday, April 14, 2010

Limitations of micro-economics

Limitations of micro-economics
Micro economics has following limitations:
  1. May no be true in aggregates:Micro economics studies small economic units explaining the relation and the equilibrium between them.But the use of the conclusions of the equilibrium of small units or the partial equilibrium in case of the economy as a whole provides wrong conclusion.Because what is true in cost of one unit may be true case of aggregates.For example,individual saving is good since it promotes individual economic property.But if all people save,the effective demand is reduced.This,in,turn reduces the employment opportunities.
  2. Assumption of full employees unrealistic:Micro-economic assumes 'ceteris paribus and full employment'.But this is an unrealistic assumption.According to J.M.Keynes,the society has unemployment rather than full employment.He observed "to assume full employment is to our difficulties opportunities.
  3. Concentration on small parts :Micro-economics concentrates on small parts of the total economy.For example,it studies about individuals demand,individual price and so on.Micro-economics,does not give knowledge about the working of the whole economy.The knowledge of the economy.The knowledge of the economy as a whole is also equally important to the men.