Economics Notes on ” MicroEconomics and MacroEconomics “

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General Awareness play a vital role in all  Examination. we can expect  Questions from different Topics.In Banking and other competitive exams like RRB, CDS, LIC AO, RBI, SSC, UPSC, FCI, UIIC, OICL, SBI Clerks and PO the questions on  Structure and Composition of Biosphere  are being asked. Here we have given Economics Notes on ” MicroEconomics and MacroEconomics “ for SSC CGL Examinations 2019-20 & other examination. Candidates those who are all preparing for the Examination can use this study material.

Before 1930, there was only one ‘economics’. Ragnar Frisch coined the words ‘micro’ and ‘macro’ in 1933 to denote the two branches of economic theory, namely, microeconomics and macroeconomics.

Microeconomics

The word ‘Micro’ is derived from the Greek word mikros meaning small. Microeconomics deals with small segments of the society.

Microeconomics is defined as the study of behaviour of individual decision-making units, such as consumers, resource owners and firms.

It is also known as Price Theory since its major subject-matter deals with the determination of price of commodities and factors.

Microeconomics has both theoretical and practical importance. It solves the three central problems of an economy, i.e., what, how and for whom to produce. Subject

Importance of Microeconomics

Microeconomics has both theoretical and practical importance. It is clear from the following points:

1. Microeconomics helps in formulating economic policies which enhance productive efficiency and results in greater social welfare.

2. Microeconomics explains the working of a capitalist economy where individual units (i.e., producers and consumers) are free to take their own decision.

3. Microeconomics describes how, in a free enterprise economy, individual units attain equilibrium position.

4. It helps the government in formulating correct price policies.

5. It helps in efficient employment of resources by the entrepreneurs.

6. It helps business economist to make conditional predictions and business forecasts.

7. It is used to explain gains from trade, disequilibrium in the balance of payment position and determination of international exchange rate.

Limitations of Microeconomics

Microeconomics fails to explain the functioning of an economy as a whole. It cannot explain unemployment, poverty, illiteracy and other problems prevailing in the country.

Macroeconomics 

The word ‘Macro’ is derived from the Greek word makros meaning large. Macroeconomics deals with aggregative economics.

Macroeconomics is defined as the study of overall economic phenomena, such as problem of full employment, GNP, savings, investment, aggregate consumption, aggregate investment, economic growth, etc. It is also known as Theory of Income and Employment since its major subject-matter deals with the determination of income and employment.

The study of macroeconomics is used to solve many problems of an economy like, monetary problems, economic fluctuations, general unemployment, inflation, disequilibrium in the balance of payment position, etc.

Importance of Macroeconomics

Macroeconomics has emerged as the most challenging branch of economics. In the words of Samuelson, “… no area of economics is today more vital and controversial than macroeconomics.” The importance of macroeconomics on theoretical and practical reasons is clear from the following points:

1. It gives an overall view of the growing complexities of an economic system. It provides powerful tools to explain the working of the complex economic systems.

2. It provides the basic and logical framework for formulating appropriate macroeconomic policies (e.g., for inflation, poverty, unemployment, etc.) to direct and regulate economy towards desirable goals.

3. It helps in analysing the reasons for economic fluctuations and provide remedies.

Limitations of Macroeconomics

Some of the major limitations of macroeconomics are:

(i) Macroeconomics ignores structural changes in an individual unit of the aggregate. The conclusions drawn on the basis of aggregate variables may be misleading.

(ii) As Hicks puts it,“most of macro magnitudes which figure so largely in economic discussions are subject to errors and ambiguities.

Difference Between Micro and Macro Economics