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Unit-1: Introduction to Microeconomics

3. Helpful in the efficient employment of resources: Price theory is related to utilising the rare Notes
resources in an efficient manner. The problem which is faced by the present government is especially
the distribution of resources. As per this view microeconomic is used by the government for the
efficiency of resources and for attending growth with stability.
4. Helpful to the business executive: Microeconomics is helpful for the businessman in achieving
maximum production with the present resources. With the help of this, he is able to understand the
consumer’s demand and estimate cost of his products.
5. Helpful in understanding of some problems of taxation: Microeconomic is helpful to understand
some problems of taxation. It is helpful to explain the prosperous results of a tax. It takes factors of
taxation towards optimum level of redistribution. Microeconomics helps in explaining that a tax
makes deficiency of social welfare or production charge or sales tax. The deficiency of social welfare
happens due to the production charges or sales tax rather than income tax. Microeconomics analysis
studies the distribution of tax ratio of sales tax between sellers and consumers.
6. Helpful in understanding the problems of international trade: It is used in the field of international
trade for determining international trade projects, disequilibrium in balance of payment and foreign
exchange rate. Expected demand character ties of each other’s products determine the projects from
international trade. Disequilibrium in balance of payments means disparity between demand and
supply of foreign solvency. In a free market, the deficiency of currencies is fixed on the exchange
rate and demand and supply of foreign currency.
7. To examine the conditions of economic welfare: Microeconomics can be used to examine the
conditions of economic welfare means, “examining subjective satisfaction, which could be received
by enjoying individual, goods and services as well as rest”. It includes study of welfare economics
which defines an ideal economy. As mentioned above, welfare economy is linked with enhancement
of social welfare. This is possible only in perfect competition. But, there is always dislocation of
resources in monopoly, oligopoly or monopolistic competition and actual production is always
less from its optimum level. So there is always wastage of resources. Microeconomics helps in
suggesting various ways of eliminating wastage for the maximum social welfare. As Prof. Learner
states, “We are either related to eliminate or to end most of the wastages in the microeconomics, or
with the fact that organised production is not done in the best possible manner because of wasting
influence – Microeconomics theory point out the condition of efficiency (i.e. to eliminate every type
of inefficiency) and suggests that how to fulfil these conditions. This condition which is called ‘Pareto
Optimum’ condition helps to make comfortable to the living conditions.”
8. The basis for prediction: According to Bilas, microeconomics theory can be used as a basis for
prediction. It does not mean that it will provide the ability to tell the future. But it gives the ability
to the supervisor to tell the future in conditional manner. The terms are as: if anything happens then
we can get a result of an aggregate group. For example we would be able to study the government
policies which affect the products and wages and see that how these policies affect the distribution
of factors. Microeconomics theory gives us the liberty to state this in conditional manner.
9. Construction and use of models for actual economic phenomena: Microeconomics used to
create the models to understand the economical structure. As Bilas said— “The theoretical way of
microeconomics is used to represent the prices by such models and also to understand the distribution
of various things. The officer who uses this theory should be able to judge the significance of this
problem.” Learner clarified this by saying— “Microeconomics helps to understand the problem
of the very problematic things by various models which looks real in terms of understanding. In
this mean time, these models would give the opportunity to the economist to define this as this
incident looks real in terms of growth and which can serve personally and socially. This will not
only help to clarify the real economical conditions, but also give solutions which look good as well
as precise and will also predict to the terms and incidents like this.” Thus this is good method to
solve the problems.

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