Q.State any four limitations of Microeconomics.

Microeconomics is important because it explains price determination, guides the efficient allocation of scarce resources, helps in business decision-making and forms the basis of economic welfare and policy analysis. Any four such points can be stated for a 4-mark answer.

Microeconomics deals with the behaviour of individual units — a particular consumer, firm, industry or the market for a single good. Its usefulness can be brought out through the following points (any four are enough).

1. Price determination: Microeconomics explains how the price of a commodity and of factors of production is fixed through the interaction of demand and supply, which is the very core of the price mechanism.

2. Efficient allocation of resources: Since resources are scarce, microeconomics shows how they can be allocated among different uses so as to get maximum output and satisfaction, promoting efficiency.

3. Basis of business decisions: It helps producers and firms decide what to produce, how much to produce, and at what price, by studying costs, revenue and market conditions.

4. Economic welfare: Microeconomics helps in judging conditions of maximum consumer and producer welfare and in framing suitable economic policies.

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