Microeconomics is the study of small groups of society including the study of the decision making of the individuals such as consumers, firms, households etc. in allocating of resources. The approach of microeconomics is both practical as well as theoretical. It focuses on solving the three major problems of an economy i.e., what to produce, how to produce and for whom to produce.


The word micro is derived from the Greek word ‘mikros’ which means small. It is the branch of economics that involves study of human behavior related to the decision making of allocation of scarce resources by the individuals, consumers, resource owners etc. We can also refer to the study of microeconomics as the price theory as it majorly focuses on the study of determination of prices of products and factors.

Major topics covered in microeconomics are as follows:

  • Pricing of products & services: The determination of prices of the products& services are based on the factors related to the demand & supply of the commodity.
  • Factor pricing: Factor of production includes rent, labor wages, interest & profit i.e., it includes all the inputs that are required to manufacture a product or service with the objective to earn economic profit.  Here the factor pricing theory deals with determination of factor prices.
  • Welfare economics: The welfare economics involves study of how the resource allocation & economic policies affects the well being of the society.

Advantages of Microeconomics:

The advantages are as follows:

  1. The study of microeconomics helps in the formulation of economic policies thereby enhancing the productive efficiency and resulting in the greater social welfare.
  2. It helps in the optimum utilization of resources by employing resources efficiently.
  3. Microeconomics also helps in making predictions about the future and making business forecasts.
  4. It tells the people about the pricing theory of the goods, services & factors of production i.e., how the forces of demand & supply affects the variation in the prices of such goods, services & factors of production.
  5. The formulation of correct polices related to the economy is possible with the study of microeconomics as it provides knowledge about various factors that influence the economy of the nation and world.

Disadvantages of Microeconomics:

The disadvantages are as follows:

  1. Microeconomics doesn’t take into consideration the problem of the economy as a whole such as the problem of unemployment, poverty, illiteracy etc. that are also essential factor that impact the economic system.
  2. Microeconomics fails to explain the aggregate matters of the economy such as aggregate production, aggregate income & expenditure etc. as it focuses mainly on the individual behavior.

Final Thought:

Thus, microeconomics deals with the individual decision making on the allocation of scarce resources. It involves factors that affect the determination of prices of the goods & services and the factors of production. Microeconomics also describes the working of the capitalist economy where the producers and the consumers are free to make decisions.

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