Microeconomics and

Macroeconomics
Dr. Ranjul Rastogi

Subject matter of Economics

Traditional :Boulding and Chapman

Consumption
Production
Exchange
Distribution
Modern: Ragner Frisch
Microeconomics and macroeconomics

Micro economics
Mikros- greek word meaning small
Makros- large
K.E. Boulding microeconomics is the study of
particular firms, particular households, individual prices,
wages, incomes, individual industries, particular
commodities etc.
Studies the action and behavior of individual units and
small groups of individual units
Microeconomics consists of looking at the economy
through a microscope, as it were to see how the millions
of cells in the economic body .
A.P. Lerner

Microeconomics
How different eco units attain the position of
equilibrium
Narrowly defined groups
Studies resource allocation, product and factor
pricing
Studies eco efficiency
Optimum direction of production
Product pricing factor pricing and welfare
economics
Microeconomics and economy as whole

Contd.

Partial equilibrium
General equilibrium
Equilibrium of each of them individually as
well as collectively to each other

Importance

Theoretical and practical

Theoretical
Formulation of eco policies that will promote welfare
Allocation of resources
Composition of total production
Relative prices of various products and factors
Condition of efficiency
Describes and prescribes
Decentralized system of free private enterprises
externalities

Macro economics
Macroeconomics Greek word Makro- meaning "large"
Macroeconomics is a branch of economics dealing with the
performance, structure, behaviour , and decision-making of
the entire economy. This includes a national, regional, or
global economy.
Macroeconomists study aggregated indicators such as GDP,
unemployment rates , and price indices to understand how
the whole economy functions. Macroeconomists develop
models that explain the relationship between such factors
as national income, output, consumption, unemployment,
inflation, investment, international trade and international
finance.

Macroeconomics
K.E. Boulding macroeconomics is that part of the
subject which deals with large aggregates and averages of
the system rather than with particular items in it and
attempts to define these aggregates in a useful manner and
to examine their relationships.
Large aggregates and subject matter of macroeconomics is
national income, output, consumption, unemployment,
inflation, investment, international trade and international
finance.
Macroeconomics is distinguished from macro.
Macroeconomics also uses aggregates smaller than for
the whole economy but only in context which makes them
sub-division of an economy. - Prof Gardner Ackley

Macroeconomics
Neo-classical economist neglected
macroeconomics
Subject matter of macro economics
-Analysis of determination of national income
and employment
-general price level
-theory of economic growth
- theory of relative shares in national income

Why a separate study of economics?

Whatever is true for individual cannot be true
for general and economy as a whole
Macroeconomic paradoxes exist
Forest is the aggregation of trees but it does
not reveal the same properties and behavior
pattern as the individual trees.
Paradox of thrift and paradox of wage cut

Interdependence between micro and

macro
Theories of macro are derived from micro
theories (not all) eg. Theory of investment
Theory of consumption(same behavior)
Micro theory of relative prices of the product
depends upon the general price level

Importance of macro economics

Understanding the functioning of a
complicated economic system
Gives birds eyeview of the economy as a
whole
Useful to economic policies
More fruitful to regulate aggregate demand,
employment, national income etc.
Solution the problems

Limitations of both
Microeconomics
-cannot give an idea of functioning of the
economy as a whole one industry will be
flourishing and
whereas economy as a whole may be
languishing
- assumes full employment
- unrealistic assumptions

Limitations
Macroeconomics
Individual is ignored
Increase national saving at the expense of individual
welfare is not a wise policy
Macro overlooks individual differences
A steep increase in manufactured article may conceal
the fall in agricultural article and hurting
agriculturalists.
While taking about aggregate it is also essential to
remember the nature, composition and structure of
the components

Importance of economics
Theoreticalimportance
Informative
Intellectual importance
Understanding the functioning of economic
system
Knowledge of mutual dependence
Comparative study
Intelligent citizenship

Contd.
Practical importance
Consumers
Producers
Laborer
Social reformer
Government
Price determination
Local, national and international affairs
Economic planning and development

Economic laws vs. govt. laws

Economic laws are statement of tendencies.
Ceteris paribus Have certain assumptions
like perfect competition, full employment,
rational behavior, etc.
Economic laws are like law of tides.
Govt. laws are type of command
Enforced by a sanction etc.