MICROECONOMICS

&
MACROECONOMICS

WILLIAM ASAMOAH-APPIAH
 Branches of Economics

§ Traditionally economics is divided into

two main branches:
§ microeconomics and
§ macroeconomics.
Overview of M & M
 Meaning of Microeconomics

§ “Micro” is a Greek word “mikros” meaning small.

§ Microeconomics deals with small segments of
the society.
§ It is the study of behaviour of individual decision-
making units, such as consumers, resource
owners and firms.
§ It is concerned with specific segments of the
economy, particularly the behaviour of individual
consumer and firm and of groups of firms in
industries
Meaning of Microeconomics cont.
§ It is also known as Price Theory.
§ Since it covers theories of product pricing,
factor pricing and economic welfare.
§ Micro economics studies economic behaviour
of the households, firms and industries
§ It examines whether resources are efficiently
allocated
§ For example, how the individual consumer
distributes his income among various products
and services so as to maximize utility.
 Meaning of Macroeconomics

§ “Macro” is derived from the Greek word

“makros” meaning large
§ Macroeconomics is a part of economic study
which analyzes the economy as a whole.
§ It is the study of overall aggregate economic
variables such as: national income, full
employment or unemployment, volume of the
output aggregate consumption, savings and
investment, general price level (inflation) and
economic growth, capacity of production, rate
of growth.
 Macroeconomics

§ It is also known as Theory of Income

and Employment
§ Since its major subject-matter deals
with the determination of income and
employment.
 Meaning of Macroeconomics cont.
§ It seeks to explain how the economy’s
total output of goods and services and
total employment of resources are
determined and what explains the
fluctuation in the level of output and
employment.
SCOPE OF MICROECONOMICS
 Working of the Economy

§ The study of macroeconomics is crucial to

understand the working of an economy.
§ Economic problems are mainly related to the
employment, behavior of total income and
general price in the economy.
§ Macroeconomics help in making the elimination
process more understandable.
 Economy Policies

§ Macroeconomics is very useful in an economic

policy.
§ Underdeveloped economies face innumerable
problems related to overpopulation, inflation,
balance of payments etc.
§ The main responsibilities of government are
controlling the overpopulation, prices, volume of
trade etc.
 Understanding the Behavior
of Individual Units
§ to solve the problem of deficiency in demand of
individual products, understanding the causes of fall in
aggregate demand is required.
§ to know the reasons for increase in costs of a
particular firm or industry, it requires the
understanding of the average cost conditions of the
whole economy.
§ Macroeconomics enhances our knowledge of the
functioning of an economy by studying the behaviour
of national income, output, savings, and
consumptions.
 Diff. btn Micro & Macroeconomics
  Bases Microeconomics Macroeconomics
1. Definition It is the economic theory It is the economic theory
which studies the which studies the
behaviour of individual units behaviour of aggregates
of an economy. of the economy as a
whole.
2. Tools of Demand and Supply. Aggregate Demand and
Analysis Aggregate Supply.

3. Main It aims to determine price It aims to determine

Objective of a commodity or factors income and employment
of production. level of the economy.
 Differences cont.

4. Other ‘Price Theory’. ‘Income and

names Employment
Theory’.
5. Examples Individual Demand, National Income,
Firm’s National
Output. Output.