LIMITATIONS OF MICROECONOMICS
LIMITATIONS OF MICROECONOMICS
There are ,however certain limitations of microeconomics analysis mostly ,these stem from attempts to yield macroeconomics generalizations from individuals experiences.
FALLACY OF COMPOSITIONS:
In macroeconomics analysis the "fallacy of compositions "is involved ex. aggregate economic behaviors is the sum total of individuals activities ,but what is true of individuals is not necessarily true of the economy as a whole ,for instance,savings are a private virtue but a public vice,if total savings in the economy increase,they may initiate a depressions unless they are invested again,if an individuals depositor withdraws his money from the bank there is no danger;but if all depositors do this simultaneously ,there will be a run on the banking system will be adversely affected.
There are ,however certain limitations of microeconomics analysis mostly ,these stem from attempts to yield macroeconomics generalizations from individuals experiences.
FALLACY OF COMPOSITIONS:
In macroeconomics analysis the "fallacy of compositions "is involved ex. aggregate economic behaviors is the sum total of individuals activities ,but what is true of individuals is not necessarily true of the economy as a whole ,for instance,savings are a private virtue but a public vice,if total savings in the economy increase,they may initiate a depressions unless they are invested again,if an individuals depositor withdraws his money from the bank there is no danger;but if all depositors do this simultaneously ,there will be a run on the banking system will be adversely affected.
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