Greek word: Mikros = small / millionth part

Traditional approach

Era of classical economists: Adam smith, David Ricardo, J. S

Coined by: Norwegian Economist Ragnar Frisch of Oslo union 1933 Mill

Popularised by neo-classical economist : Prof. Alfred Marshall His book: Principles of economics - 1890
Greek word: Makros = large Micro

Existed before evolution of micro economics Other economists like Prof. Pigou, J.R.Hicks, Prof. Samuelson,
Mrs. Joan Robinson also contributed to the development

a group of English merchants

deals with a small part of the national economy.
16th and 17th century, followers of Mercantilists
advocated policies to the government which were based on
macro approach studies the economic actions and behaviour of individual individual consumer, individual producer or a firm, the price
Macro units of a particular commodity or a factor etc.

analyses the entire economy

Study of aggregates explains how the prices of different products and various
Price Determination
factors of production are determined

total employment, national income, national output, total

investment, total consumption, total savings, general price Free market economy is:where the economic decisions
level interest rates, inflation, trade cycles, business regarding production of goods, such as ‘What to produce?,
fluctuations etc. How much to produce?, How to produce? etc.’ are taken at
individual levels
Free Market Economy helps in understanding the working of a free market economy

branch of economics which considers the relationship There is no intervention by the Government or any other
between large aggregates such as the volume of agency
J. L. Hansen
employment, total amount of savings, investment, national
income etc.”
Definitions of Macro Economics explains various aspects of foreign trade like effects of tariff
on a particular commodity, determination of currency
Macro economics deals with the functioning of the economy Foreign Trade exchange rates of any two countries, gains from international
Prof Carl Shapiro
as a whole. trade to a particular country etc.

explains which factors determine the level of national income helps in understanding various complex economic situations
and employment and what causes fluctuations in the level of with the help of economic models
income, output and employment Importance of Micro Economics :
Theory of Business Cycles valuable contribution to economics by developing various
Theory of Income and Employment Economic Model Building
Theory of Consumption Function terms, concepts, terminologies, tools of economic analysis etc

Theory of Investment Function Economic models are built using various economic variables.

shows how the general price level is determined and further helpful to businessmen for taking crucial business decisions
explains what causes fluctuations in it.
Theory of General Price Level and Inflation Business Decisions
related to the determination of cost of production,
study of general price level is significant on account of the determination of prices of goods, maximization of output and
problems created by inflation and deflation Scope of Macro Economics
profit, etc.

explains the causes of underdevelopment and poverty. These policies help government to attain its goals of efficient
Theory of
Useful in framing economic policies such as taxation policy, allocation of resources and promoting economic welfare of
Economic Growth and Development Useful to Government
suggests strategies for accelerating growth and development. public expenditure policy, price policy etc. the society.

deals with the relative shares of rent, wages, interest and

profit in the total national income. Macro Theory of Distribution explains how best results can be obtained through optimum
utilization of resources and its best allocation
Basis of Welfare Economics
studies how taxes affect social welfare.

study of economy as a whole

Study of Aggregates
concerned with the aggregate concepts such as national Study of Individual Units study of the behaviour of small individual economic units E.g: individual firm, individual price, individual household
income, national output, national employment, general price
level, business cycles etc.
Determination of the prices of goods, services and factors of
Price Theory
production
studies the concept of national income, its different elements,
methods of measurement and social accounting.
analyses equilibrium position of an individual economic unit

deals with aggregate demand and aggregate supply. Income Theory

Partial Equilibrium isolates an individual unit from other forces

explains the causes of fluctuations in the national income that

lead to business cycles i.e. inflation and deflation. studies its equilibrium independently.

deals with the behaviour of large aggregates and their Other things remaining constant
functional relationship.
General Equilibrium Analysis Meaning: With other conditions remaining the same;
deals with the behaviour of demand, supply and prices in the Modern economics Ceteris Paribus
other things being equal
whole economy.
Based on Certain Assumptions

Such as, perfect competition, laissez-faire policy, pure laissez-faire policy: the policy of leaving things to take their
takes into account interdependence between aggregate capitalism, full employment own course without interfering
economic variables, such as income, output, employment,
investments, price level etc
makes the analysis simple
Interdependence
example, changes in the level of investment will finally result
into changes in the levels of income, levels of output, Features of Micro Economics:
splits or divides the whole economy into small individual units
employment and eventually the level of economic growth.

Features of Macro Economics topic Slicing Method then studies each unit separately in detail
study of the whole economy rather than its part.
E.g: 1.individual income out of national income
According to Prof. Boulding, “Forest is an aggregation of trees 2. study of individual demand out of aggregate demand
but it does not reveal the properties of an individual tree.” Lumping Method

key tool of micro economic analysis

This reveals the difference between micro economics and
macro economics
marginal' means change brought in total by an additional unit

Use of Marginalism Principle

Studies various factors that contribute to economic growth Marginal analysis helps to study a variable through the
and development changes

useful in developing growth models. Producers and consumers take economic decisions using this
Growth Models principle
used for studying economic development.

analyses different market structures such as Perfect

example, Mahalanobis growth model emphasized on basic Analysis of Market Structure Competition, Monopoly, Monopolistic Competition, Oligopoly
heavy industries. etc.

Determination and changes in general price level are studied limited to only individual units
General Price Level
Limited Scope
General price level is the average of all prices of goods and doesn’t deal with the nationwide economic problems such as
services currently being produced in the economy. inflation, deflation, balance of payments, poverty,
unemployment, population, economic growth etc.

According to Keynes, macro economics is a policy oriented

science.

Policy-oriented Demand Analysis individual consumer behaviour

suggests suitable economic policies to promote economic
growth, generate employment, control of inflation, and Theory of Product Pricing
depression etc. individual producer behaviour.
Supply Analysis

Macro economic analysis gives us an idea of the functioning

of an economic system. Rent Land
Functioning of an Economy
helps us to understand the behaviour pattern of aggregative Wages Labour Micro economic theory shows under what conditions these
variables in a large and complex economic system.
efficiencies are achieved.
Theory of Factor Pricing factors that contribute to the production process

Interest Interest Main focus:

helps to analyse the causes of fluctuations in income, output Scope of Micro Economics
1. Price Theo
and employment and makes an attempt to control them or Economic Fluctuations
2. Resource allocation
reduce their severity. Profit Entrepreneur
Does not study:
1. aggregates relating to the whole economy.
brought forward the immense importance of the study of
efficiency in the allocation of resources: attained when it 2.national economic problems such as unemployment,
national income and social accounts.
results in maximization of satisfaction of the people. poverty, inequality of income, Theory of growth, theory of
National Income
business cycles, monetary and fiscal policies
Without a study of national income, it is not possible to
formulate correct economic policies. producing maximum possible amount of goods and services
Efficiency in Production
from the given amount of resources.

Theory of Economic Welfare

help to understand the problems of developing countries
such as poverty, inequalities of income and wealth, distribution of produced goods and services among the
Efficiency in Consumption
differences in the standards of living of the people etc people to maximize total satisfaction
Economic Development
Importance of Macroeconomics
suggests important steps to achieve economic development.
production of those goods which are most desired by the
Overall Economic Efficiency
people.

helps us to analyse the performance of an economy

Performance of an Economy
National Income (NI) estimates are used to measure the Maurice Dobb Micro economics is in fact a microscopic study of the economy
performance of an economy over time by comparing the
production of goods and services in one period with that of
the other period. Definitions of Micro Eco :
how the millions of cells in the body of economy
Micro economics consists of looking at the economy through
Prof A. P. Lerner
a microscope individuals or households as consumers and individuals or
To understand the working of the economy, study of macro
firms as producers play their part in the working of the whole
economic variables are important.
economic organism
Study of Macro economic Variables
Main economic problems are related to the economic
variables such as behaviour of total income, output,
employment and general price level in the economy.

helps to analyse the general level of employment and output

Level of Employment
in an economy.