What Is The Importance And Limitations Of Micro Economics?

The importance of micro approach lies in the fact that it constitutes a method of individual analysis.  It studies the interdependent relationship among the individual economic quantities such as the relationships between the variation in the price of commodity and the corresponding change that takes place in its consumption.  A number of economic laws and theories which include the marginal concepts, the theory of consumer's behavior etc. have been conceived through it.

Further more, it helps the taxation authority to locate the incidence and visualize the impact of the tax proposal.  It also provides deals, such as term of trade, to decide whether to increase or restrict trade activities with a particular country.  

Again consumption level of the people in relation to different categories of goods and services can be easily ascertained on the basis of micro study and as such micro economics is helpful evaluating the economic welfare of the people.

Limitations

a) It can not give an idea of the functioning of the economy as a whole.  An individual industry may be flourishing, where as the economy as a whole may be languishing.

b) It assumes full employment which is a rare phenomenon.  It is, therefore, an unrealistic assumption.