Q.Distinguish between Micro-economics and Macro-economics.
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Start your 14-day free trial to unlock the full solution →Micro-economics studies individual units and the prices of particular goods; macro-economics studies the whole economy and aggregates like national income and the general price level.
Micro-economics and macro-economics are the two main branches of economic analysis; they differ as follows:
- Meaning —
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Micro-economics is the study of the economic behaviour of individual decision-making units, such as a single consumer, a single firm, a household or a particular market.
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Macro-economics is the study of the economy as a whole, dealing with economy-wide aggregates.
- Subject matter / central problem —
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Micro-economics deals with the determination of the prices of individual commodities and factors, and the allocation of resources. It is therefore called Price Theory.
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Macro-economics deals with the determination of national income, total output, total employment, the general price level, aggregate demand and aggregate supply. It is therefore called Income and Employment Theory.
- Scope / examples —
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Micro: how the price of wheat is fixed in a market; how a firm decides its output; consumer equilibrium.
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Macro: how national income is determined; causes of inflation and unemployment; the trade cycle.
- Method —
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Micro uses the assumption 'other things being equal' and partial-equilibrium analysis of individual units.
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Macro uses aggregates and general-equilibrium analysis of the whole economy.
- Also called —
- Micro-economics: Price Theory or the 'slicing' method (it studies small parts). …
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