Macro and Micro Economics

MICRO ECONOMICS

Micro economics is the branch of economics which deals with individual units.
 Microeconomics is the study of economics at an individual, group, or
company level.
Microeconomics focuses on issues that affect individuals and companies. 
It includes:
 Product pricing
 Consumer behaviour
 Factor pricing
 Firms behaviour
 Industry location
MACRO ECONOMICS
Macro economics is the branch of economics which
deals with economy as a whole i.e. study of a national
economy as a whole instead of individual aspects.
Macroeconomics focuses on issues that affect nations
and the world economy. 
It includes aspects such as:
 National income
 General price level
 Employment level
 Level of savings and investment
Differences

Micro Macro
economics economics
Deals with individual Deals with aggregate
units and effect of or large scale units i.e.
individual decisions The structure,
regarding the behaviour and
allocation of scarce decision making in an
resources economy as a whole.

Derived from Greek Derived from Greek

term ‘mikro’ which term ‘makro’ which
means small means large

It applies to It applies to
operational or environment or
internal issues external issues
 Micro Macro
economics economics
Concerned with
Concerned with
aggregates of
Single economic
economy such as
variables such as
national income,
demand, price and
aggregate savings
consumer
and aggregate output.

Scope is narrow Scope is wide

The central problem

The central problem
is price
is determination of
determination and
level of income and
allocation of
employment
resources

Maintains stability in
the general price
It ascertains price of
level and is helpful in
a product and other
solving various
factors of production
problems of
economy.
Scarcity in economics
Scarcity in economics refers to when the demand for a resource
is greater than the supply of that resource, as resources are
limited.
Scarcity results in consumers having to make decisions on how best
to allocate resources in order to satisfy all basic needs and as many
wants as possible.
Therefore, scarcity can limit the choices available to the consumers
who ultimately make up the economy.
For example, this can come in the form of physical goods such as
gold, oil, or land – or, it can come in the form of money, labour,
and capital.
Example: scarcity of vaccine for COV-19 when it first came up into
the market.
What Are the Main Causes of Scarcity?

The primary causes of economic scarcity are demand-

induced, supply-induced, and structural.
Demand-induced refers to when supply remains static
and demand grows.
Supply-induced is when the supply of a resource is
below that of demand, and structural is when a portion
of a population does not have the same access to
resources as another portion of the population.
 How Can a Society Deal With Scarcity?

Societies can deal with scarcity by increasing supply.

 The more goods and services available to all, the less
scarcity there will be.
Of course, increasing supply comes with limitations,
such as production capacity, land available for use, time,
and so on. Another way to deal with scarcity is by
reducing wants.
The fewer wants, or demands, for certain goods and
services that are not basic needs, such as food and
shelter, the less stress there will be on limited resources.
UTILITY IN ECONOMICS

Utility is a term in microeconomics that describes to the

incremental satisfaction received from consuming a
good or service. 
Economists say that human beings rank their activities
based on utility.
A laborer chooses to go to work rather than skip it
because he anticipates his long-run utility to be greater as
a result.
 A consumer who chooses to eat an apple rather than an
orange must value the apple more highly, and thus
anticipates more utility from it.
Measurement of Utility

Measurement of a utility helps in analyzing the

demand behaviour of a customer. It is measured in
two ways:
Cardinal Approach
In this approach, one believes that it is measurable.
One can express his or her satisfaction in cardinal numbers
i.e., the quantitative numbers such as 1, 2, 3, and so on.
It tells the preference of a customer in cardinal
measurement. It is measured in utils.
 Limitation of Cardinal Approach

In the real world, one cannot always measure utility.

One cannot add different types of satisfaction from
different goods.
For measuring it, it is assumed that utility of
consumption of one good is independent of that of
another.
It does not analyze the effect of a change in the price.
Ordinal Approach

In this approach, one believes that it is comparable.

One can express his or her satisfaction in ranking. One
can compare commodities and give them certain ranks
like first, second, tenth, etc. It shows the order of
preference. An ordinal approach is a qualitative
approach to measuring a utility.
Limitation of Ordinal Approach

It assumes that there are only two goods or two baskets
of goods. It is not always true.
Assigning a numerical value to a concept of utility is
not easy.
The consumer’s choice is expected to be either
transitive or consistent. It is always not possible.
Scope of Economics
Scope of economics is wants, efforts and satisfaction.
Economics begins with human wants and ends with
satisfaction of those wants.
Economics is concerned with satisfaction of wants. It is a
social science and therefore tries to find out solutions to
social problems like unemployment of natural resources,
raising national income through planned economic
development.
Economic is a science. Science is defined as a systematized
body of knowledge.
Economics, too, has its rules, regulations and laws in which it
binds itself.
 POSITIVE OR NORMATIVE?
 Now, the question is whether economics is a positive or normative science. Positive
science is one which deals with the facts as they are while normative science is one which
deals with the facts as they should be or ought to be.

 Positive economics attempts to describe and analyze the existing situation rather than
suggesting how to change it.

 But many times economists do often make normative statements. Instead of explaining
how the economy actually operates, they suggest, how it should operate.

 Especially, where problems of the economy are concerned, economists abandon the
objectivity of positive economics and make normative statements.

 Physics, chemistry, geology and biology are the positive sciences as they deal with the
facts as they are while social sciences like economics, psychology, sociology, political
science etc. deal with the facts as they should be. Thus, economics is both positive as well
as normative science. While dealing with individual economic problems, it is a positive
science and while dealing with social problem it becomes normative science.
 BOTH AN ART AND SCIENCE
The knowledge of economics has gone so far that it reached a stage
when its facts have been collected and carefully analyzed and laws
or general principles explaining to facts have been laid down. This
makes economics a positive science.
 It is also considered an Art because it lays down and formulates to
guide people who want to achieve a certain aim. The aim may be
removal of poverty or raising production of goods and services in
the country.
Economics does help us in solving many day-to-day practical
problems. It is not mere a theory. It has great practical use.
Therefore, one can conclude that economics is both a science and an
art also.
SCOPE OF MICRO ECONOMICS
The scope of micro-economics includes in it
production, consumption and distribution or any other
activity tends to be carried out with the highest
efficiency so as to maximize social welfare.
 It also studies every constituents of the circular flow of
income. In other words micro-economics is the
application of economic problems.
Micro-analysis are useful for price determination and
allocation of resources, determination of economic
policies, international trade, and optimum utilization of
resources.
Limitations of micro-economics
It does not throw any light on the collective activity.
The analysis is based on unrealistic assumptions which
may result into doubtful conclusions.
scope of macro-economics
The scope of macro-economics is very wide and it
assumed added importance since the publication of
J.M. Keynes, General Theory of Employment, Interest
and Money in 1936. It is considered to be policy
making economics.
The study of macro-economics includes, the theory of
income, employment, general price level, theory of
factor pricing, economic growth and inflation and
deflation.
Importance of Macro-Economics

1. The study of macro-economics enables the

government to frame the correct and effective
economic policy.
2. It proves to be more helpful in economic planning.
3. It helps developing micro-economic theories.
4. It also enables one to have international comparison.
5. Lastly it is absolutely essential to have knowledge of
macro-economics to make correct decisions.
 Limitations
Use of macro-economics analysis complicates the process of
the study of prices, savings, investment, factor pricing etc.
Statistical data and techniques are the soul of the study of
macro-variables.
Therefore, if reliable data is not available decisions based on
such data proved to be wrong. Also, it cannot be said that
only one variable is affected from the changes leaving all
other variables unaffected.