Micro Economics and Macro Economics

Micro Economics and Macro Economics

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Distinction Between Micro and Macro Economics

Micro and Macro Economics are two main branches of Economics. Micro Economics deals with individual economic problems whereas Macro Economics is the study of aggregates or of entire economic system. These two approaches differ from each other in the following manner :

Micro Economics

1.  It is concerned with an individual economic unit like a consumer a firm, an industry or income of an individual.

2. It is based on the assumption of full employment.

3. It is based on the assumption of ‘other things being equal’. This analysis is based on partial equilibrium.

4. Its objective is to study the theories related to optimum distribution of resources.

5. Its nature is comparatively easy.

6. It has main instruments of demand and supply.

7. It is also known as “Price Theory”.

Macro Economics

1. It deals with aggregates of economy such a national income, aggregate expenditure, total employment, general price level, etc.

2. It is based on the assumption of under full employment of resources.

3. This is based on general equilibrium analysis.

4. Its objective is to study the theories related with full employment.

5. Its nature is comparatively complex.

6. Its main instruments are aggregated demand, aggregated supply, aggregate saving and investment.

7. It is also known as “Income & Employment Theory”.

Mutual Dependence of Micro and Macro Economics

Micro and Macro Economics are two different systems of economic analysis. Both the systems are not competitive, rather they are complementary and dependent on each other. The Mutual dependence of the two can be made clear with the following discussion ;

1. Dependence of Micro Economic Analysis on Macro Economic Analysis : The study of micro economic analysis is essential for macro economic analysis. Various problems related to micro economic analysis can only be studied with the support of macro economic analysis. For Example :

   1. Rate of profit is determined in micro economic analysis on the basis of degree of uncertainly bearing but the determinants of profit and causes of their changes can be understood only with macro economic analysis.

   2. Micro economic analysis presents partial equilibrium analysis for determining the rate of interest. General equilibrium analysis of interest has been explained by Prof. J.M. Keynes on the basis of macro economics analysis.

   3. Price determination of commodity depends not only on the relative forces of demand and supply but also depends upon demand and supply of other goods for which we need help of macro economic analysis.

   4. A consumption of goods by a consumer not only depends on the price of that goods and consumer’s income but also on prices of other goods for which use of macro economic analysis is required.

2. Dependence of Macro Economic Analysis on Micro Economics : Following examples explain the dependence of macro economic analysis on micro economics :

   1. Without the information of individual units, economic conclusions cannot be withdrawn at macro level. For example, income of individuals has to be collected for measuring national income.

   2. For analysing general price level, the study of price theory is essential.

   3. The addition of activities made by individual units represents the activities of entire economy Determination of consumption, saving, investment, employment is based on individual economic activities.