Importance (Uses) of Microeconomics and Macroeconomics

Importance (Uses) of Microeconomics.

• It explains how the price of an individual commodity or factor of production is DETERMINED in a free market, through the interaction of demand and supply.
• It provides the theoretical basis for the EFFICIENT ALLOCATION of a society's scarce resources among competing uses — the central problem every economy must solve.
• It helps a firm take practical business decisions — what price to charge, how much to produce, and which technique of production to use — by analysing cost, revenue and market conditions.
• It provides the foundation for the THEORY OF ECONOMIC WELFARE, helping to judge whether a given allocation of resources makes society better or worse off.
• It is the basis of international trade theory (for instance, the theory of comparative advantage), explaining why and how countries specialise and trade with one another.
• It guides a government's decisions on IMPOSING TAXES on individual commodities, since the effect of a tax on a good's price and quantity sold is a microeconomic question.

Importance (Uses) of Macroeconomics.

• It helps in understanding how the ECONOMY AS A WHOLE functions — how national income, output and employment are determined at the aggregate level.
• It provides the basis for a government's ECONOMIC PLANNING and POLICY-MAKING — both fiscal policy (taxation and government spending) and monetary policy (money supply and interest rates) are macroeconomic tools used to influence aggregate output, employment and prices.
• It helps explain BUSINESS CYCLES — the recurring phases of boom, recession, depression and recovery that market economies pass through.
• It provides the concepts and methods used in NATIONAL INCOME ACCOUNTING, which measures a country's total output and its year-on-year growth. …