Question

State whether the following statements are TRUE or FALSE.

1) Dr. Marshall is known as the Father of Economics.

2) Micro Economics studies theory of firm.

3) Micro Economics deals with allocation of resources.

4) Micro Economic theory assumes full employment.

5) Micro Economic theory suggests policies to solve problem of inflation.

Answer 1

1) False
Adam Smith is known as the Father of Economics, as he is the founder of microeconomics. On the other hand, Dr. Marshall is a neo-classical economist who developed the Principles of Economics.

2) True
Microeconomics studies the behaviour of individual units. Accordingly, a firm being an individual unit, its behaviour is studied under microeconomics. Microeconomics studies prices of commodities and factors of production in both the consumer and factor markets.

3) True
Microeconomics explains the optimum allocation of resources. It explains the distribution of resources among the competing groups in a manner that ensures their efficient usage; that is, there is minimum wastage of resources. In other words, it explains us how these scarce resources should be distributed so that they can be utilised to the fullest.

4) True
The microeconomic theory is based on many assumptions such as full employment, perfect competition and a laissez-faire style of working. However, these assumptions may not always exist in reality and, consequently, make the validity of microeconomics doubtful.

5) False
Microeconomics is the study of the behaviour of individual units in an economy. Problems such as inflation relate to the behaviour of the all the economic units simultaneously in an economy. In this regard, it is beyond the scope of microeconomics.