Types and Scope of Micro Economics

Scope of microeconomics 

Micro economics studies: 

1. Theory of product pricing with its two constituents, namely the theory of consumers behavior and the theory of production and costs. 
2. The theory of factor pricing with its four constituents, namely theories of wages, rent, interest and profits. 
3. Theory of economic welfare. 

Microeconomics is sometimes referred to as ‘price theory’, because prices are the core of microeconomics. 

Types of microeconomics

Microeconomics is of three types. 

1. Micro statics 
2. Comparative micro statics 
3. Micro dynamics 

1. Micro Statics:

It is that method of analysis which deals with the relationship between different micro variables at a given time under conditions of equilibrium. It is assumed that the position of equilibrium relates to a given time and that no change occurs in it. For example, the price of a commodity in market is determined by the equilibrium of demand and supply at a given time. Micro statics studies the equilibrium price of the commodity at a given time, assuming that the forces of demand and supply do not undergo any change. Micro statics does not throw any light on the process by which the forces of demand and supply have reached the position of equilibrium. It studies the relationship between the micro variables or quantities as if they were a series of ‘still’ pictures. 

2. Comparative Micro Statics:

It is that method of analysis which compares the equilibrium position of the relations between micro variables at different points of time. In other words it is a comparative study of different equilibria at different points of time. But comparative micro statics throws no light on the transition from one position of equilibrium to that of another. In fact it jumps over from one equilibrium to another without telling us what happens during the transitional periods. For example, let us suppose that the price of a commodity is Rs10 and it has been established as a result of equilibrium between its demand and supply. Now, let us suppose that the demand of the commodity falls and the new equilibrium price is Rs10. This method will throw no light on the process by which the new equilibrium price has been arrived at. In brief, this method involves a comparison of different ‘still’ pictures. 

3. Micro dynamics:

This method refers to that process whereby we reach from one position of equilibrium to that of another. Micro dynamics throws full light on the happenings in the transition from one equilibrium to another. It involves the fullest study of the forces which come into operation between the disturbance of one equilibrium and the establishment of another. For example: the price of a commodity is the result of equilibrium between its demand and supply. Now let us suppose that the demand for the commodity falls, as a result, disequilibrium will occur in the market. This may be followed by a series of disequilibria before the final disequilibrium takes place and the new equilibrium price is established at a lower level. Now the method of micro dynamics fully reflects all the disequilibria which occur between the disturbances of one equilibrium and the establishment of another. In brief, this method involves a full length movie film of the entire sequence.


Notes provided by Prof. Sujatha Devi B (St. Philomina's College)