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1.2 Macro and Microeconomics

These are two branches or rather methods of exposition of the science of economics. The distinction between them can best be explained by comparing their main features. As the terms suggest, macroeconomics deals with the market on a large-scale and its aggregate problems, while microeconomics concerns markets on a small-scale and individual aspects of the problems. There are six distinct aspects of the two approaches that are shown as in the following table:

   

    

Microeconomics

Macroeconomics

(a)

Units of the study

Individual consumers, producers workers, traders, etc.

Aggregate units such as state National or International economy.

(b)

Activities

Optimization and maximization of personal gains and profits.

Long term growth, maintenance of high levels of production and employment.

(c)

Origin

Micro activities emerge on the demand side of consumerís choices.

Problems of long-term growth depend upon the supply of productive resources

(d)

Conditions

This approach is functional under static conditions and small time intervals.

This approach is functional under dynamic conditions and complex long run changes.

(e)

Methods

It is concerned with small adjustments, for which the application of a marginal method is suitable.

It deals with complex, dynamic changes inviting the use of advanced mathematical techniques.

(f)

Levels

Micro adjustments in resource A allocation are made in response to changes in relative prices of goods and services. The aggregate level of income or total economic activities is considered to be constant.

Macro approach attempts to find the conditions of long-term expansions in output as a whole, assuming relative prices as constant (or significant).

This distinction between micro and macroeconomics as presented above is only a matter of theoretical convenience. The two approaches are complementary and not competitive; one cannot consider these to be watertight compartments. Moreover, the distinction is to be understood as relative in nature. The problems of a city municipal corporation are macro in nature as compared to those of individual citizens, but a city unit is micro as compared to the state, and the state unit is micro as compared to the nation and the national unit can be considered micro in the context of the global economy. Again all economic problems and activities, whether micro or macro are ultimately connected with making a choice and optimization. They emerge out of and are concerned with human behavior.

Index

1.1 Definition and Nature
1.2 Macro and Microeconomics
1.3 Positive and Normative Science
1.4 Positive Economic Theory And Analysis

Chapter 2

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