Meaning and Definitions of Micro Economics

Introduction 

It has become fashionable these days to approach economic theory via micro or macro analysis. In fact the two terms have become quite current in the economic jargon's and economic theory is divided today under two heads. They are;

1. Microeconomics 
2. Macro economics

These terms were coined by Professor Ragner Frisch of Oslo University during 1920s and since then they have been adopted by other economists so by now they have become parts and parcels of current economic learning.

The term micro economics is derived from the Greek word ‘Mikros’ means ‘small’. Micro economics thus, deals with a small part or a small component of the national economy of a country. Micro economics is the study of individuals and small group of individuals. 

Meaning and Definitions

Micro economics may be defined as that branch of economic analysis which studies the economic behaviour of the individual unit, may be a person, a particular household, or a particular firm. It is a study of one particular unit rather than all the units combined together. 

• According to Professor Boulding, "Microeconomics is the study of individual firms, households, individual prices, wages, and particular industries". 

• According to Professor McConnell, "Microeconomics is concerned with specific economic units and a detailed consideration of the behaviour of these individual units". 

When operating at this level of analysis, the economists figuratively put an economic unit or very small segments of the economy under the microscope to observe the details of operation. In microeconomics, we examine the trees, not the forest. Microeconomics is useful in achieving a birds’ eye view of some very specific component of our economic system. 

In microeconomics we study the various units of economy; how they function, and reach their equilibrium. In other words, in microeconomics we attempt only a microscopic study of the national economy at a time; we do not study the national economy in its totality. An inquiry as to how a particular person maximizes his satisfaction or how a particular family adjusts its expenditure to income is an inquiry in the domain of micro economics. 

Microeconomics, thus, studies the behaviour of micro quantities or micro variables. Micro economics splits up the entire economy into small parts for the purpose intensive study. 

Microeconomic studies, for instance, the prices of individual commodities, wages, and the output of individual industries, individual investment, income, and demand. Thus microeconomics theory studies the behavior of individual decision making units such as consumers (house holds), resource owners and business firms. In the circular flow of economic activity in the community, microeconomics studies the flow of economic resources or factors of production from the resource owners to business firms and the flow of goods and services from the business firms to households. It studies the compositions of such flows and how the prices of goods and services in the flow are determined. 

A note worthy feature of micro approach is that, while conducting economic analysis on a micro basis, generally an assumption of full employment in the economy as a whole is made. On that assumption the economic problem is mainly that of resource allocation or the theory price. That is why till recently economics concerned itself mainly with the theory of value and distribution and ignored the study of the economic system as a whole.

Notes provided by Prof. Sujatha Devi B (St. Philomina's College)