Distinguish between Micro economics and Macro economics.
Microeconomics may be defined as that branch of economic analysis, which studies the economic behavior of the individual unit, maybe a person, a particular household, or a particular firm. It is a study of one particular unit rather than all the units combined together. In microeconomics, we study the various units of the economy, how they function and how they reach their equilibrium. An important tool used in that of microeconomics is that of Marginal Analysis. In fact, it is an indispensable tool used in microeconomics. Some of the important laws and principles of microeconomics have been derived directly from marginal analysis. The following are the fields covered by microeconomics: •
Theory of Product pricing with its two constituents, namely, the theory of consumer behavior and the theory of production and costs. •
Theory of Factor pricing.
Theory of Economic Welfare.
Those who have studied Latin know that the prefix “micro-“ means “small,” so it shouldn’t be surprising that microeconomics is the study of small economic units. The field of microeconomics is concerned with things like: •
Consumer decision making and utility maximization
Firm production and profit maximization
Individual market equilibrium
Effects of government regulation on individual markets
Externalities and other market side effects
1. Micro Economics studies the problems of individual economic units such as a firm, an industry, a consumer etc. 2. Micro Economic studies the problems of price determination, resource allocation etc. 3. While formulating economic theories, Micro Economics assumes that other things remain constant. 4. The main determinant of Micro Economics is price.
Macro Economics may be defined as that branch of economic analysis which studies the behavior of not one particular unit, but of all the units combined together. Macroeconomics is a study of aggregates. It is the study of the economic system as a whole ï¿½ total production, total consumption, total savings and total investment. The following are the fields covered by macroeconomics: •
Theory of Income, Output and Employment with its two constituents, namely, the theory of consumption function, the theory of investment function and the theory of business cycles or economic fluctuations. •
Theory of Prices with its constituents of the theories of inflation, deflation and reflation. •
Theory of Economic Growth dealing with the long-run growth of income, output and employment. •
Macro Theory of Distribution dealing with the relative shares of wages and profits in the total national income. The study of macroeconomics is indispensable as it is the main agent for formulation and successful execution of government economic policies. It is also indispensable for the formulation of microeconomic models. Macroeconomics
Macroeconomics can be thought of as the “big picture” version of economics. Rather than analyzing individual markets, macroeconomics focuses on aggregate production and consumption in an economy. Some topics that macroeconomists study are: •
The effects of general taxes such as income and sales taxes on output and prices •
The causes of economic upswings and downturns
The effects of monetary and fiscal policy on economic health •
How interest rates are determined
Why some economies grow faster than others
1. Macro Economics studies economic problems relating to an economy viz., National Income, Total Savings etc. 2. Macro Economics studies the problems of economic growth, employment and income determination etc. 3. In Micro Economics economic variables are mutually inter-related independently. 4. In Micro Economics economic variables are mutually inter-related independently. The Relationship between Microeconomics and Macroeconomics
There is an obvious relationship between microeconomics and macroeconomics in that aggregate...
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