Ch. 1 micro and macro economics

Ch. 1 micro and macro economics

• 2.
  Micro economics The prefix'micro' is derived from Greek word 'mikros', meaning small. “Micro economics studies the economic behaviour of individual economic units and individual economic variables.” The study of economic behaviour of the households, firms and industries forms the subject- matter of micro economics.
• 3.
  Micro economics isconcerned with economic activities of individual economic units as consumers, resource owners and business firms. It explains how these individuals as consumers or households, as resource owners and as producers play their part in the working of the whole economic system. It revolves around the interaction of consumers and producers in markets.
• 4.
  Product market: Theory of demand Theory of production Theoryof cost Theory of product pricing Factor market: Theory of distribution Welfare economics. Subject-Matter of Micro Economics Micro economics is concerned with
• 5.
  Determination of productprices Determination of factor prices and their quantities in the individual markets The allocation of resources among various firms and industries. It deals with the action and interaction of individual markets-product and factor markets. Thus, micro economics deals with the
• 6.
  The prefix 'macro'is derived from the Greek word 'makros' meaning, 'large'. Macro economics is the study of the economy as a whole. Macro economics " deals with the functioning of the economy as a whole.” Macro economics "Macro economics deals not with individual quantities as such but with aggregate of these quantities; not with individual incomes but with national income; not with individual prices but with the price level; not with individual outputs but with the national output." - Prof. Boulding
• 7.
  Subject-Matter of MacroEconomics Theory of National Income Theory of Output and Employment Theory of General Price Level Theory of Economic Growth Theory of International Trade Theory of Money
• 8.
  Microeconomics It deals withan individual's economic behavior. It deals with the pricing of a particular commodity in an industry. Price is the basic parameter of micro economics. Study of micro economics is important for resource utilization, public finance, and for taking business decisions. It deals with aggregate economic behavior of the people in general. It deals with the general price level in the economy, National income accounting, etc. Income is the basic parameter of macro economics. Study of macro economics is important for formulation of economic policy of the whole nation. Macroeconomics
• 9.
  The concepts ofmicro-economics are independent concepts. The concepts were popularized by the famous Alfred Marshall. These concepts have more theoretical value. Bottom up view of the economy The concept of macro economics are interdependent on one another. The concepts were popularized by the famous Lord J.M. Keynes. These concepts have more practical value. Top down view of the economy Microeconomics Macroeconomics
• 10.
  Interdependence of Microeconomics& Macroeconomics Prof. Paul A. Samuelson has aptly remarked, "There is really no opposition between micro and macro economics. Both are vital. You are less than half-educated if you understand one while being ignorant of the other." Macro economics deals with 'big' issues of economic life but the entire economy is made up of its parts. Basic goal of both micro economic and macro economic theories is the maximisation of material welfare of the people and the entire economy.
• 11.
  Functio ning of the market econo my Allocati on of resourc es Price determ ination Econo mic efficien cy Helpful in interna tional trade Useful in busines s decisio ns Formul ationof econo mic policy Importance of Micro economics
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  Importance of Macroeconomics Understan ding the working of the economy Understan ding the major issues facing the economy Study of national income Insight into micro economics Useful in formulatin g governme nt's economic policies Internatio nal compariso n
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