Despite its importance, microeconomics analysis suffers from certain limitations, which are as follows.
- What is true in the case of an individual unit may not be true in the case of aggregates. For example, individual thrift may be good, but social thrift is definitely harmful for the community. If the entire community starts saving more, effective demand will be reduced and employments retarded. Likewise wage cutting in a particular firm may promote employment, but general wage cutting may actually result in reducing the volume of employment in a community. The result of microeconomic analysis should therefore be applied to the aggregates with caution.
Note: This is published for the internal use (of St. Philomena's College students) only and hence requires verification.
Post a Comment