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Microeconomics
0 Microeconomics deals with the behavior and working of
individual economic units such as a household, a firm, an
industry and so on.

Subject matter of microeconomics includes:

0 Theory of consumption
0 Theory of production
0 Theory of Factor Pricing
0 Theory of Economic Welfare
Macroeconomics

0 The term ¶marcro· is derived from the Greek word


¶makros· meaning ¶large·

0 Macroeconomics is that part of economic analysis


which deals with the study of the economy as a
whole and its major aggregates.
Macroeconomics

Thus in Macroeconomics we study topics such as

national output and income, level of employment,


aggregate demand and supply, the volume of savings
and investment, demand for and supply of money and
other financial assets, the price level and so on.
Macroeconomics

0 Focus is on three aspects of national aggregates


i) Measurement ² National Income/output/price
changes/Employment/ Unemployment
ii) Stability ² Output/Employment/Price/Inflation
iii) Growth ² Output/Income/Employment/
employment

Economic growth Vs development


macroeconomics
the major areas of study under Macroeconomics can be
categorized as follows:

a. Determination of national output, employment and


income (covering theory of employment and income)
b. Determination of price level in the economy (covering
theory of money and prices)
c. Determination of factor income shares (covering macro
theory of distribution)
d. Economic stability and growth (covering theories of
business cycles and economic growth)
Macroeconomics

Macroeconomics

Theory of Theory of Macro theory Theory of


income and money and of distribution business cycles
employment prices and growth
Macroeconomics
0 Macroeconomics is not just aggregation of
individual units and their behaviour

0 It is much more

0 Fallacy of composition

- What applies to individual units may not hold


good for the group ( or the whole economy)
Fallacy of composition

0 Money as a resource

0 Savings for an individual household

0 Good crop for a farmer


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Managerial decisions in a firm are taken


at two levels-

 Oirm Level or micro level-economic principles which


guide decision making at this level deals with Price,
Cost of Production, Quality

 Macro Level- decisions are based on growing


demand, interest rate stability, price
stability/inflation, tax rates, exchange rates
MICRO ECONOMICS MACRO ECONOMICS
Difference between Macro and Micro-economics
studies the individual behavior, the consumption
studies the overall market structure, enables the organization
behavior or attitude of a consumer to understand the size and capacity of the market.

demand in micro economics directly depends on the demand depends on the organization's expectations.
individual's expectations
concerned with the price of a individual product the overall production costs is considered
deals with the individual's tax aspects deals with the overall tax aspects of the country.
enables in establishing a method which can analyze Focuses on economies and trades between very large
individual economic forces entities, usually country and world economies.
market behavior of the consumers can be understood emphasizes money policy, world inflation, exchange rates,
which is very much helpful in decision making free trade, tariffs, and so forth

focuses on small-scale economic decisions, between deals with large-scale economic decisions. It focuses on
individuals and firms. It examines how businesses can countries or continents and large regions, and it generally
be the most successful and why individuals make the has applications for government policy makers
economic decisions that they do.

In microeconomics the questions keep changing, but the In macroeconomics, the questions stay the same but the
answer is always is answered where marginal revenue answers keep changing. An example of macroeconomics is
equals marginal cost. inflation--a rise in the general level of prices.