LIMITATIONS OF MICROECONOMICS
LIMITATIONS OF MICROECONOMICS
AGGREGATE VARIABLES MAY NOT BE IMPORTANT NECESSARILY:
The aggregate variables which form the economics systems may not be of much significances,for instance,the national income of a country is the total of all individuals incomes ,a rise in national incomes does not mean that individuals incomes have risen,the increases in national incomes mights be the results of the increase in the incomes of a few rich peoples in the country ,thus a rise in the national incomes of this types has little's significance from the points of view of the community.pro.boulding call these three difficultities as macroeconomics paradoxes"which are true when applied to a single individuals but which are untrue when applied to the economics systems as a whole.
AGGREGATE VARIABLES MAY NOT BE IMPORTANT NECESSARILY:
The aggregate variables which form the economics systems may not be of much significances,for instance,the national income of a country is the total of all individuals incomes ,a rise in national incomes does not mean that individuals incomes have risen,the increases in national incomes mights be the results of the increase in the incomes of a few rich peoples in the country ,thus a rise in the national incomes of this types has little's significance from the points of view of the community.pro.boulding call these three difficultities as macroeconomics paradoxes"which are true when applied to a single individuals but which are untrue when applied to the economics systems as a whole.
LIMITATIONS OF MICROECONOMICS
LIMITATIONS OF MICROECONOMICS
TO REGARD THE AGGREGATES AS HOMOGENEOUS:
The main defect in macro analysis is that it regards the aggregates as homogeneous without caring about their internal compositions and structures,the averages wage in a country is the sum total of wages in all occupations,ex. wage of clerks,typists,teachers,nurses,etc. but the volume of aggregate employments depends on the relative structures of wages rather than on the everage wage ,if for instance,wages of nurses increases but of typists fall,the averages may remain unchanged ,but if the employments of nurses fallss a little and of typists rises much ,aggregate employments would increases.
TO REGARD THE AGGREGATES AS HOMOGENEOUS:
The main defect in macro analysis is that it regards the aggregates as homogeneous without caring about their internal compositions and structures,the averages wage in a country is the sum total of wages in all occupations,ex. wage of clerks,typists,teachers,nurses,etc. but the volume of aggregate employments depends on the relative structures of wages rather than on the everage wage ,if for instance,wages of nurses increases but of typists fall,the averages may remain unchanged ,but if the employments of nurses fallss a little and of typists rises much ,aggregate employments would increases.
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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