Micro Economics Macro Economics Dr Mukku Syam Babu

Micro Economics & Macro Economics Dr. Mukku Syam Babu Lecturer in Commerce, Government Degree College, Razole, East Godavari Dist.

Introduction Ø The scope of Economics has been mainly divided into Micro Economics and Macro economics Ø Positive economics and Normative Economics.

Ø The first person who used the terms “Micro” and “Macro” economics is “Ragner Frisch”. Ø The word “Micro” is derived from Greek word “mikros” which means ‘Small’.

Ø Thus micro economics deals with the analysis of small individual units of the economy such as individual consumers, individual firms and small aggregates or groups of Individual units such as various industries and Markets.

Ø The term Macro Economics is derived from Greek word “makros” meaning ‘Large’. Ø Macro Economics deals with larger aggregates such as national output and income, total employment, total consumption, Aggregate investment.

Ø According to K. E. Boulding, Micro Economics is the study of particular firms, particular households, individual prices, wages, incomes, individual industries, particular commodities.

Ø According to him, Macro Economics deals not with individual quantities as such, but with aggregates of these quantities, not with individual income but with national income, not with individual price but with price level, not with individual output but with national output”.

Micro Economics & Macro Economics

Micro Economic Theory Product Pricing Theory of Demand Theory of Producti on and Cost Welfare Economics Theory of Distribu tion Wages Rent Interest Profits

MICRO ECONOMICS ØIt is the microscopic study of the economy. ØIt seeks to explain what quantity of different factors of production should be used in producing a commodity Ø(Theory of Production)

MICRO ECONOMICS ØHow to minimize the cost of production (Theory of Cost) ØHow the prices of various products determined (theory of Product Pricing).

ØHow the output produced is shared among those persons who cooperate in production of this output (theory of Distribution) ØIt also examines whether resources are efficiently allocated (welfare economics)

MICRO ECONOMICS ØIt studies the households who aims at maximizing the utility it derives from the consumption of goods given their prices and its budget.

IMPORTANCE OF MICRO ECONOMICS ØIt is highly helpful in the formulation of economic policies that will promote the welfare of masses.

IMPORTANCE OF MICRO ECONOMICS ØIt tells us how a free-market economy with its millions of consumers and producers work to decide about the allocation of productive resources among thousands of goods and services.

MACROECONOMICS ØIt is a broad field of study. Ø It studies Aggregated Indicators such as GDP, Unemployment Rates, and Price Indices to understand how the whole economy functions.

MACROECONOMICS ØIt develops models that explain relationship between factors such as National Income, Output, Consumption, Unemployment, Inflation, Saving, Investment, International Trade and International Finance.

ØMacro Economics models and their forecasts are used by both Governments and large corporations to assist in the development and evaluation of economic policy and business strategies.

ØFiscal Policy and Monetary Policies are good examples of how economic management is achieved through these government strategies.

Theory of Income and Employment Macroecono mic Theory of General Price Level and Inflation Theory of Economic Growth Open Economy Balance of Payments and Foreign Exchange Theory of Consumption function Theory of Investment

DETERMINATION OF INCOME AND EMPLOYMENT ØIt explains what determines the level of National Income and Employment, and what causes fluctuations in the level of national income output and employment.

GENERAL LEVEL OF PRICES AND INFLATION ØExamine the relationship between Price level changes and inflation. Øit shows how the general level of prices is determined.

Micro Economics VS Macro Economics Basis Micro Macro Study Individual Economy as whole Deal With Individual Units Aggregate Units Tools Demand & Supply of Aggregate Demand particular commodities and Aggregate Supply of Economy as whole Central Problem Price Determination of Determine level of commodities or factor income and of production employment

Micro Economics VS Macro Economics Basis Prices Micro Relative Prices Decide Type of Practical equi Analysis analysis Scope Narrow Understan Easier ding Macro Absolute price decide General equi analysis Wider Complex

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