Sea analysis etc, Are built using various economic variables. 5) Buslyess Decisions: Micro economic theoriés are helpful to businessmen for taking druciol business. decisions. ‘These decisions are related to the determination Of 0st of\prouction, determination of Priees of goods, maximization of output ‘nd profit, ete. © Useful to Govetument : It is useful 10 Sovemment in framing economic policies Such as taxation polity. public expenditure Policy, price policy etc, help the government 10 attain its goals of efficient allocation of; resources “and Promoting economic welfare ofthe society. 7) Basis of Welfare een economics explains how best be cbtained through optimum utilization of resources and its best allocation I Studies how taxes affect social welfare, These policies of economic models, It hos made a valuable contribution to economies, by developing Various terms, concepis, terminologies, tools ¢ models conomie mod apiro - “Macro fark Sh Con, 2) Prof Ci functioning of the cont et ih te whole aso art gives an j The town CBA BES On gg {macro economics pe o ty the seMeope of Macro Economics oes oe fof Theolyef — Theory of od, ee iad General Economic yy nc Emploi Secon, Dit | Jation are nkayof Thott ae Business Cycles 9 Theory of Income and Employmeny Macro economic analysis explains factors determine the level of ation income and employment and what cay fluctuations in the level of income, utp utang employment. To understand, how the leye of employment is determined, we have to Study the consumption function and investmen function. Theory of Business Cycles is also g Part and parcel of the Income and Employment, hic Theory of is determined ang nS What causes fluctuations f general price level i Pott of the protien mn and deflation, and Development ‘ S comsists of the theory STOW and development. It "Of underdevelopment shares the tota Features 1) Study deals lise such natio busin 2) Inco the c elem soci with SUPE inth cycl 3) Ger eco lax, rel wit pri 4) Int int ag ine pri the int of ley Sb st Pe is Te qT ec 9 Gpoverty, inequality ofincome ete, Theory of growth, theory of business cyeles, monetary ‘and fiscal policies ete. are beyond the limits of micro economics. AGatures of Micro Econo 1) Study of Individual Units Micro ito economics is the study of the behaviour ang of small individual economic units, like tte individual firm, individual price, individual ia household ete. for 2) Price Theory ; Micro economics deals with 4 determination of the prices of goods and tit services as well as factors of production. Hence, it is known as price theory. 5 3) Partial Equilibrium : Equilibrium is the balance between two factors. Micro ie economic analysis deals with partial equilibrium which analyses equilibrium te position of an individual economic unit i.e. individual consumer, individual firm, individual industry ctc. It isolates an individual unit from other forces and studies its equilibrium independently. "4) Based on Certain Assumptions : Micro jes begins with the fundamental mption, “Other things remaining a such as perfect policy, pure individual income study of individual ” 8) 2 3 4) ‘an edditional unit, Marginal analysis helps to study. a, variable through the changes Producers and consumers take economic decisions using this principle Analysis of Market Structure : cnolyses different Micto economics market structures such as Perfect Competition, Monopoly, Oligopoly ete. Limited Scope economies is limited to only individual units. It doesn’t deal with the nationwide economic problems such as_ inflation, deflation, balance of payments, poverty Monopolistic Competition, ‘The scope of micro unemployment, population, economic growth ete. ortance of Micro Economics: 4 Price Determination : Micro economies explains how the prices of different products and various factors of production ‘ore determined. Free Market Economy : Micro economics helps in understanding the working of a free market economy. A free market economy is that economy where the economic decisions regarding production of goods, such as ‘What to produce?, How much to produce?, How to produce? ete.” are taken at individual levels. There is no intervention by the Government or any other agency. Foreign Trade ; Micro economics helps in explaining various aspects of foreign trade like effects of tariff on a particular commodity, determination of currency exchange rates of any two countries, gains from intemational trade to a particular country ete, Building ; Micro economics helps in understanding various complex economic situations with the helpLet's recall You hove already studied in Class XI. the meaning and definitions of economic given by different economists Fig. 1 Introduetion Micro economies and Macro economics are the to main branches of modem economics ‘The term ‘micro’ is derived from the Greck word, “Mikros’ which means small or a millionth part The term ‘macro’ is derived from the Greek ‘word, “Makros’ which means large. ‘These terms were coined by Nonvegian Economist Ragnar Frisch of Oslo University in 1933, ‘Main Branches of Economics ‘Micro’ Beonomics —$—$—————— t@ Introduction to Micro Economics and Macro Economics likely the fiest person to have referred to the study of individual firm and producer os “Microeconomics.” Moreover, he referred to the study of the aggregate economy as Macroeconomics.” You should know Historical review of Miero Eeonomics : Micro Eeonomie analysis was developed first. It is @ traditional approceh. Origin of this approach can be traced back to the era of Classical Economists- Adam Smith, David Ricardo, J. $. Mill ete It was popularized by Neo-Classical Beonomist, Prof. Alfred Marshall in his book, ‘Principles of Economics’, published in 1890. Other economists like Prof. Pigou. J. R. Hicks, Prof, Samuelson, Mrs. Joan Robinson, ete. have also contributed to the development of Micro Feonomics. Historical Review of Macro Economi Macro Economics did exist in the past before the evolution of Micro Economics. In the 16" and 17" century, followers of Mercantilists (a group of Enalish merchants) advocated policies to the government which were based on macro approach. In the 18 century, Physiocrats (French Thinkers) tried to analyse the concept of national income and wealth Eyen the Classical Economic theories of Prof. Adam Smith, Prof. Ricardo and Prof. J. S. Mill discussed the determination of national income and wealth. But their macro analysis was combined with m cnalysis, Thus, micro analysis ruled the ‘world of economics till the Great Depression of 1930s. 10 After the Great Depression, Lord JohnMayon! Keynes publi his famous book the "Cereal Theory of Eiployment, Interestand Money" in 1946, Keynes used macro economic approch'to analyse economic problems. The ‘credit for the evelopment of maero-esonomie approach oes to Lord Keynes. Besides Keynes, Malthus, Wicksell, Walras, Irving Fisher are other economists who have contributed to the development of macro economies, Meanin, of Micro Economics : Micro means a small pact of @ thing. Micro Sconomies thus deals with a smell part of the Rational economy. It studies the economic ctions and behaviour of individual units such 8 an individual consumer, oro firm, the price of a 4 factor ee, individual producer Particular commodity or efinitions of Micro Economics : ‘You have already studied some important definitions of micro economies, Some more definitions : A} Maurice Dobb - “Micro economies is in fact a microscopic study 2) Pt ANP. emer - “viiero economics Consists of looking t the economy through i let us review of the economy.” cory of Product Pricing : The 5, © ic de Ceara sere individual consumer ga ote lysis i-¢. individual yy cand supply analy’ Prodi, ne a ae to the production process. Micro econ, Jand, labour, capital, and entreprengy, ie (©) Theory of Economie Welfare : Theory Welfare basically deals with efficieng i the allocation of resources. Efficiency inthe allocation of resources is attained wien results in maximization of satisfaction of the people. Eeonomicyefticieney invojya, three efficiencies production. man Efficiency jp Producing maximu Possible amount of goods and services fy the given amount of resources, Efficiency in consumption Efficiency in consumption distribution of ices among the uch a way asta of the society. iciency : It means the }OOds which are most means Produced goods and servi People for consumption in g Maximize (otal satisfaction Overait economic eff Production of those g, Aesired by the people, le whole economy. eS not study national poverty.in growth, th tnd fiseal of micro atures of ¥ 1) Study of small individ househo 2) Price! determi Hence, 3) Partia the ba conor equili positi ie. ir indivi indivi its eq 4) Base econ assu cons