Differentiate between Micro and Macro Economics.
Differentiate between Micro and Macro Economics.
Ans.
The subject matter of Economics has been divided into two parts Micro Economics and Macro Economics.
Micro Economics
The term Micro is derived from the Greek word ‘mikros’ meaning ‘small”. According to Prof. Boulding, “Micro Economics is the study of particular firms, particular households, individual price, wages, income, individual industries and particular commodities”. In micro-economics we study the economic behaviour of an individual, firm or industry in the national economy. It is a study of a particular unit rather than all units combined. It is basically concerned with the mechanism of allocation of given resources. Further, it is a particular equilibrium analysis as it seeks to determine price and output in an industry, independent of those in other industry. Following topics are included in the subject matter of micro-economics:
(a) Product pricing,
(b) Consumer behaviour,
(c) Factor pricing,
(d) Economic conditions of a section of the people,
(e) Study of firms,
(f) Location of industry, etc.
Thus, when we are studying how a producer fixes the price of his product or why an industry is located at a particular place, we are studying micro-economics.
Macro Economics
The term Macro is derived from the Greek word ‘makros’ meaning “large’. It is the study of overall economic phenomena or the economy as a whole, rather than its individual parts. According to Mc Connel, “Macro economics examine the forest and not the trees. Thus, it analyses and establishes the functional relationship between large aggregates”. Thus, in Macro economics, we study the economic behaviour of large aggregates such as the overall condition of the economy, such as total production, total consumption, total saving, total investment etc. It includes:
(a) National income and output, (b) General price level, (c) Balance of trade and payments, (d) Cxternal value of money, (e) Saving and investment, and (f) Employment and economic growth, etc.
Thus, when we study about budget deficits or level of employment or the level of inflation, then we are studying macro economics.
For better understanding of the two concepts, a columnar difference is given below:
Difference between Micro and Macro Economics
Micro Economics:
1. It studies individual economic units.
2. Micro economics is basically concerned with the mechanism of allocation of given resources. Further, micro economics is a partial equilibrium analysis as it seeks to determine price and output in an industry independent of those in other industries. Moreover, micro- economics analysis looks into the determination of relative prices.
3. Examples:
(a) Individual demand (b) Price of a product
Macro Economics:
1. It studies aggregate economic units.
2. Macro economics is a general equilibrium analysis as it takes into account the disturbance in equilibrium prices and quantity in one market which could lead to a disturbance in the equilibrium industry prices and quantities in all other markets. Macro economics analyses the determination of absolute prices.
3. Examples:
(a) Aggregate demand
(b) General price level
(c) National income
It may be noted that the classification of Economics into micro and macro economics is purely for analytical purpose.
In fact there is really no opposition between micro and macro economics. Both are absolutely vital and in most cases they play a complementary role e.g. national income cannot grow unless the production in individual firms and factories rises.
