Tuesday, August 25, 2009
Difference between Micro Economics and Macro Economics
The study of economics is divided by the modern economics into two parts viz Micro economics and Macro economics.
An economic system may be looked at as a whole or in terms of its innumerable decision making units such as consuming units e.g. individual consumers and house holds producing units e.g. firms, farms, business and mining concerns, individual factors or production e.g. labourers, land owners, capitalists extrepreneurs and individual industries e.g. cotton textiles, iron and steel, fry making. When we are analysing the problems of economy as a whole it is macro-economic study. While an analysis of the behaviour of any particular decision making unit, such as a firm and industry a consumer, constitutes micro economics.
Micro economics is also called “Price Theory” and Macro Economics is called “Income Theory”. Price theory explains the composition or allocation of total production. Why more of something is produced than other. Income theory explains the level of total production and why the level rises and falls.It may be emphasised that neither of the two approaches outlined above can alone adequately helps in analysing the working of the economic system. What is true of the parts may not be true of the whole and what is true of the whole may not apply to parts. It is very necessary to integrate the two approaches, if we wish to get correct solutions of our main economic problems. As, if a country is making progress from collective point of view while some sectors like energy are facing crises. Again the whole country may be in the clutches of recession but the electronics industry may be growing. In such like situation we can not depend upon neither entirely on macro nor on micro economics. Micro eventually generates macro. The total output and employment of economy depends upon the production and employment of the firm and industries. The aggregate consumption of the economy depends upon the consumption behaviour of individuals. The price theory in micro economics is aimed at optimal allocation of resources, while macro economics wishes to utilize the resources of economy fully. As Professor Ackly Gardener’s words “it is difficult to draw a line between micro economic theory and macro economic theory; the real general theory of economy will consist both the branches. Such theory will explain the individual behaviour, individual outputs, individual incomes and individual prices. While the summation of individual results will provide us such aggregates which would be dealing with macro economics.” Tags: Macro Economics
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