Economics is the study of how individuals, governments, and nations use scarce resources to best satisfy their unlimited needs. Microeconomics is the field of economics that examines the decisions of businesses and individuals trying to improve themselves as much as possible, and how these decisions can influence the market and even the entire economy in which they operate. Although these theories are very useful in explaining why consumers make the decisions they do, they still have some limitations that need to be considered. This essay will highlight some of these limitations, including: static theories, imperfect knowledge, the number of goods in a utility function, changes in behavior around others, and profit maximization. One of the limitations of economic theory is that, to show the relationship between price and quantity demanded or quantity supplied, other factors influence the quantity demanded, for example the price of a substitute good, or the quantity provided, for example the price of an input, are kept constant. These factors remain constant, because in reality, they are constantly changing. It can therefore be difficult to determine how one factor, such as price, may affect another factor, such as quantity demanded or supplied, because other constantly changing factors influence the quantity demanded or supplied at the same time. This is a limitation because these other factors influence the quantity demanded or supplied and therefore can influence the outcomes of individuals' and firms' decisions. For example, a pie company might decide to lower the price of its apple pies, thinking that this will increase individuals' demand for apple pies because they are now relative... middle of paper ... its profit . The benefits of the decision are not realized until well after the decision has been made, due to the high cost of purchasing the pie machine, and the knowledge of the additional profit the pie machine generates per pie will not be available until 'at the end. Monthly accounts are prepared. Although economics is useful for understanding why individuals and businesses make the decisions they do, or for predicting the outcomes of individuals' or businesses' decisions, there are still some important limitations that must be considered when the use of information. However, these limitations do not diminish the usefulness of economic theory for making forecasts or understanding the decisions of individuals and businesses. Reference list: Perloff, JM (2014). Microeconomics with Calculus (Third Edition, World Edition). United States of America: Pearson Education