Micro-Economics Or Price Theory:

Micro-Economics or Price Theory:

The term ‘micro-economics’ is derived from the Greek prefix ‘micro’, which means small or a millionth part. Micro-economic theory is also known as ‘price theory’. It is an analysis of the behaviour of any small decision-making unit, such as a firm, or an industry, or a consumer, etc. For micro-economics, in contrast to macro economic theory, the statistics of total economic activity are valueless as far as providing clues to policy decisions. It does not give an idea of the functioning of the economy as a whole. An individual industry may be flourishing, whereas the economy as a whole may be suffering.

In respect of employment, micro-economics studies only the employment in a firm or in an industry and does not concern to the aggregate employment in the whole economy. In the circular flow of economic activity in the community, micro-economics 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 composition of such flows and how the prices of goods and services in the flow are determined.

A noteworthy 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 of theory of price.