Micro & Macroeconomics and their impact on daily life Essay

Micro & Macroeconomics and their impact on daily life - Essay Example The term ‘micro’ has been derived from the Greek word ‘mikros’ which literally means small. Thus Microeconomics studies economic actions and behavior of individual units and small groups of individual units. Hence, Microeconomics engages in microscopic study of the economy and seeks to determine the mechanism by which different economic units attain their positions of equilibrium, proceeding from individual units to narrowly defined groups. In a modern economy Microeconomic theories and postulates play a very significant role in understanding economic behavior of rational units of an economy. Operation of an economy: Microeconomics explains how a free enterprise operates and functions. Most economies of the world are mixed economies consisting of both public and private sector enterprises where the private sector is much larger than the public sector. Microeconomics explains how a market economy with millions of customers and producers decides the allocation of scarce productive resources among millions of goods. Efficient use of scarce resources: One of the principal problems faced by every economy is to ensure efficient employment of scarce resources between competing ends. Microeconomics helps to understand the mechanisms involved in this regard and assists policy makers to take rational decisions that would achieve economic growth with stability. Economic welfare: The whole structure of welfare economics is built upon the Microeconomic theory of Perfect Competition since maximization of economic welfare is possible only under Perfect Competition.