The word ‘micro’ means a millionth part. When we speak of micro – economics or the micro approach, what we mean is that it is some small part or component of the whole economy that we are analysing. For example, we may be studying an individual consumer’s behaviour or that of an individual firm or what happens in any particular industry. If it be an analysis or price.7 in microeconomics what we study is the price of a particular product or of a particular factor of production and not the general price level in the country. Similarly.

If a demand that we are analysing. in microeconomics it is the demand of an individual or that of an industry that is studied and nut the aggregate demand of the entire community Likewise.

1.Watson, Donald Stevenson– Price Theory and its Uses (Indian Edition), 1967, P.

income of an individual or of an industry, and not thc national income of a country, comes within the purview of micro-economics. In respect of I’IOIph,.:mcllt, it is the cmploymcnt in a linn or in an industry that is considered in micro-ecormmics and IIOt the aggregate employment in the whole economy.

(rhus, uucro-ccunnmlc theur)’ studies thc hchanoul’ or ludivlduul decisinn – making units such as cl1II511l11ers, resource rmncrs and business firms. In the circular flow of economic activity in the conununity, micro-economics studies the flow of economic resources or factors of production from the resource owners to business firms and the flow of goods and services from the business firms to
households. It studies the composition of such flows and how the prices of goods ant! services in the flow arc determined.

A noteworthy feature of micro-approach is that, whilc conuucting economic analysis on a micro basis, gencralty an assumption (If full employmcnt in thc economy as a whole is made. On· that assumption, the economic problem is mainly that of resource allocation or of theory of price, That is why, till recently, Economics concerned itself mainly with the theory of value and distribution, and ignored the
study or thc economic system as a whole.