Micro and Macro-Economics

In earlier article, we got information about basics of economics. Now take look at its type.

Economics is divided into two main parts:-

                ·     Micro economics

                ·     Macro economics

Micro Economics

The term micro leads to the meaning of small. The term micro economics derived from the Greek word ‘mikros’ which means ‘small’.  According to prof. Boulding who was a well-known economist in past years says that “Microeconomics is the study of particular firms, a particular household, individual price, wages, income, individual industries, and particular commodities.” In other words, it states that this firm of economics deals with small-scale calculations. In this economics, we study individuals rather than the whole nation we emesis on a small unit of it. This is mainly used for industries that are independent of others.

For example, when we talk about microeconomics we study about finance department of the government rather than the whole money sector. In simple terms, we give more attention to a small or particular unit of any country, nation’s government, or industry. When we study about Gujarat government on the scale of Indian government than it calls microeconomics.

We mainly study the following in microeconomics:-

·      Product pricing

·      Consumer behavior

·      Factor pricing

·      Economic condition of a section of the people

·      Study of particular firms

·      Location of industry

Thus, when we are studying how to producer fixes the prices of his products, we are studying Micro-Economics. Similarly, when we are studying why the industry is located at a particular place, we are studying Micro-Economics.

Macro Economics

The term Macro leads to large. The term Macro Economics derived from the Greek word ‘makros’, meaning ‘large’. It is the study of overall economic phenomena or the economy of the whole, rather than its individual parts. According to Mc Connel, “Macroeconomics examines the forest and not the trees. Thus it analyses and establishes the functional relationship between large aggregates.” In other words, this firm of economics study and calculate about big or at large scale. Thus, in Macro-Economics, we study the economic behavior of the large aggregates such as the overall condition of the economy such as total production, total saving, and total investment. 

For example, in Macroeconomics we study the whole expenses of government as a whole unit not by dividing it into small units like finance or any other sector. Or in a simple way, we look after the whole company rather than going for a particular firm or department.

It includes:-

·      National income and output

·      General price level

·      Balance of trade and payments

·      External value of money

·      Saving and investment

·      Employment and economic growth

Thus, when we study why we continue to have balance of payments deficits, or why the value of rupee vis-à-vis dollar is falling or why saving rates are high or low in a particular country, we are studying Macro-Economics.

It may be noted that the classification of economics into Micro and Macro-economics is purely for analytic purposes.

In fact, there is really no opposition between micro and macroeconomics. Both are absolutely vital and in most cases, they play a complementary role, E.G. national income can’t grow unless the product in individual firms and factories rises.

It is difficult to distinguish between the two terms as belonging to water-tight compartments. What macro from the national standpoint is micro from the world point of view. Similarly, what is micro from a national angle becomes macro from the regional angle. Unless we define what is the whole we cannot say about phenomena whether it is micro and macro.

reference: From book General Economics by The institute of chartered Accountants' India.