LIMITATIONS OF MICROECONOMICS
However,
microeconomics has its limitations as well:
Monetary and fiscal policies: Although total demand and total supply in the economy
is the sum of individual demands and individual supplies respectively, the
total economic picture of the country cannot always be understood in this
simplistic way. There are many factors affecting the total economic system,
which are outside the scope microeconomics. For example, the role of monetary
and fiscal policies in the determination of the economic variables cannot be
analysed completely without going beyond microeconomics.
Income determination: Microeconomics also does not tell us anything about
how the income of a country (i.e., national income) is determined.
Business cycles: A related point is that, it does not analyse the causes
of fluctuations in national income. The ups-and-downs of national income over
time are known as business cycles. Microeconomics does not help us in understanding
as to why these cycles occur and what the remedies are.
Unemployment: One of the main economic problems faced by an economy
like India is the problem of unemployment. This, again, is one of the areas on
which microeconomics does not shed much light. Because, if we are to find a
solution to the unemployment problem, we must first understand the causes of
this problem. For that, in turn, we must understand how the total employment
level in the economy is determined. This is difficult to understand from within
the confines of microeconomics.
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