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.