Question

What is the importance of studying micro economics?

Answer 1

Microeconomics is defined as the study of individuals, households and firms' behavior in decision making and allocation of resources. The significance of microeconomics is discussed below:

1. This approach of economics helps us study and understand the practical working of the economy. The entire economy is complex and complicated for a layman to analyze. However, microeconomics facilitates easy comprehension of the economic system.
2. It provides the required tools that enable the formulation of various economic policies. It also provides techniques that facilitate the easy formulation of economic strategies and economic regulations.
3. Microeconomics is of great help when it comes to studying the conditions of economic welfare. With the help of this branch of economics, we now understand the standard of living and the condition of welfare of the people. We can not only study their condition of welfare but we can also analyse the factors that determine their welfare as well.
4. This branch of economics helps us understand the level of satisfaction of the people in the economy.
5. It also helps economists identify the allocation of resources within the economy. Not only is it useful in efficiently allocating the scarce resources to productive uses but it also helps control the use of the allocated resources as well.
6. Economic theories and economic policies are very different. Economic theories help prove a particular hypothesis or condition in the market (in this case, the micro market). But economic policies help in governing the smooth functioning of the economy. Hence, economic theories can be easily drafted and formulated with the help of this branch of modern economics.

Taxes are an important source of income for a country. There have been incidents of disturbances within economies due to taxation policies. Hence, a well-planned and a well-developed taxation policy is crucial for an economy. Microeconomics ensures to understand the implications and problems of taxation and formulate suitable taxation policies.