Micro Economics is the study of the economic actions of individuals and small groups of individuals. According to Boulding, “ It is the study of particular firms, particular households, individual prices, wages, income, individual industries, particular commodities”.
The major limitations of Micro Economics are as follows:
(a) Assumptions are unrealistic: The study of Micro-Economics assumes that ‘other tilings being constant’, which is not realistic. In fact, all factors are subject to change and not constant.
(b) Micro Economics is an unrealistic analysis: Micro-Economics uses static analysis. The conclusions drawn from Micro Economic analysis are not valid. For example, individual savings is good since it promotes individual economic prosperity. But if many people indulge in savings, it may lead to a fall in demand leading to less investment and causing unemployment.
(c) The assumption of full employment is incorrect: The microeconomics is based on the assumption of full employment i.e., all the resources are completely employed in production process, which is just imaginary and not correct.
(d) Laissez-faire policy (Minimum intervention of Government): The assumption of laissez faire policy is not practical in real world, where we see intervention of Government in economic activities.
(e) Ignores Macro economic analysis: The knowledge of an entire economy is very essential to the people as it includes all the economic elements. But the micro economics concentrates only on a small part of the whole economy.
(f) It is limited in scope: The scope of micro economics is limited and narrow. It does not include income theory, inflation, monetary policies etc. which are very important for economic analysis.