Importance / Uses / Significance / Advantages of Micro economics.

1] Individual behavior analysis
Micro economics studies behavior of individual consumer or producer in a particular situation.

2] Resource allocation
Resources are already scarce ie less in quantity. Micro economics explains  efficient allocation and utilisation of resources to produce various types of goods and services.
It explains economising of scarce resources to achieve maximum welfare.

3] Business planning
Micro economics helps business planning ie helps the business community to plan their costs, production etc in anticipation of demand in order to maximize profits.

4] Price determination
Micro economics is useful in explaining how market mechanism determines price in a free market economy. Price mechanisation or the market forces of demand and supply determines prices of goods and services without any government intervention.

5] Economic policy
Micro economics helps in formulating various economic policies [price policy, tax policy etc] and economic plans for economic welfare of the people and to promote all round economic development.

6] Free enterprise economy
Micro economics explains the operating of a free enterprise economy where the individual has the freedom to take his own economic decisions.All economic decisions such as what, how, how much, where, when. For whom etc to produce are taken by producers without any commanding force but with the market forces of demand and supply.

7] Public finance
It helps the government in fixing the tax rate and the type of tax as well as the amount of tax to be levied on the buyer and the seller.

8] Foreign trade
It helps in explaining and fixing international trade and tariff rules, causes of disequilibrium in balance of payments, effects of factors deciding exchange rates impact of tariffs on prices etc. It explains and analysis how a country can gain from international trade.

9] Social welfare
It not only analyses economic conditions but also studies social needs under different market conditions like monopoly, oligopoly etc. It explains how maximum social welfare can be achieved under perfect competition. It also studies how taxes affect social welfare.

10] Simple models
Micro economics uses simple models to understand actual economic phenomenon. These simple models remove the complexities in economic analysis.

11] Predictions
Micro economics is useful in making predictions based on demand forecasting depends on the micro economic principles of demand.

12] Basis of macro economics
The study of behavior of individual units provides the base for understanding the behavior of aggregates.

Posted in General Economics