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MICROECONOMICS AND MACROECONOMICS Simplified

LETS UNDERSTAND
(1) MICROECONOMICS AND MACROECONOMICS
Economics is broadly divided into two parts. These are:
  • Microeconomics
  • Macroeconomics  
(a) MICROECONOMICS
Microeconomics is the study of economic behavior of individuals, households and firms’ in decision making and allocation of resources.
Micro economics is concerned with:
  • Supply and demand in individual (Textile Market) markets
  • Individual consumer behaviour. e.g. Consumer choice theory
  • Individual producer behavior.
  • Individual labour markets, g. demand for labour wage determination in that individual market
(b) MACROECONOMICS
Macroeconomics is the branch of economics that deals with the behavior and performance of an economy as a whole.
It is generally the study of central issues like
  • Employment
  • Growth rate of National output
  • GDP
  • Inflation
  • General Price level and stability
(2) VITAL COMPONENTS OF MICROECONOMICS
      (a)Theory of consumer behavior
This theory states that a rational Consumer allocates his income for purchase of different goods and services with aim to maximize his satisfaction.
      (b) Theory of Producer behavior
This theory states that a rational producer has to decide what to produce and how much with the aim of profit maximization.
      (c) Theory of Price
This is the theory which tells us how prices are determined in the market.
(3) DIFFERENCE BETWEEN MICROECONOMICS AND MACROECONOMICS
BASIS
MICROECONOMICS

MACROECONOMICS
(1) Meaning 


(2) Assumption


(3) Issues addressed
The branch of economics that studies the behavior of the whole economy, (both national and international) is known as Macroeconomics.

Study of microeconomics assumes that macro variables remains constant

Microeconomics Examines factors like Price of a particular product, Demand and Supply of goods and services, consumer behavior, producer behavior etc.
The branch of economics that studies the behavior of the whole economy, (both national and international) is known as Macroeconomics.

Study of macroeconomics assumes that micro variable remains constant.

Macroeconomics examines factors like National income and savings, Gross domestic product, Gross national product, Inflation, General price level, Aggregate Demand, etc.
LETS PRACTICE
1. Which of the following is the example of microeconomic variable?
a. Wholesale price index
b. National income
c. Market demand
d. Aggregate demand
Answer: c
2. Issues related to unemployment are studied in which branch of economics.
a. Microeconomics
b. Macroeconomics 
c. Micro as well as microeconomics    
d. None of these
Answer: b
3. Which of the following is not the component of microeconomics?
a. Theory of demand 
b. Theory of supply
c. Theory of prices
d. None of these
Answer: d
4. Producer is to choose………………
a. Combination of inputs for production 
b. Combination of outputs
c. The commodity he should produce   
d. Both (a) & (c )
Answer: d
Example CHIT-CHAT 
(In this conversation after getting 1000 Rupees Raju is going with his friend Sunny to purchase some articles)
Raju: Hello sunny, How are you?
Sunny: I am Fine Raju. What about you?
Raju: I am also fine. Yesterday, My Mom gave me 1000 rupees as a gift on my birthday
Sunny: Oh! Wow Great. So Have you planned where you are going to spend 1000 Rupees?
 Raju: Yes I have many options. I want to purchase novels, puzzle cube, Fancy bracelets and parker pen(Beta Gold ). Will you come with me for shopping?
Sunny: Yeah sure. Let’s go.
Raju: (At the Shop)
Uncle, please show me some interesting novels, Parker pens,
bracelets and puzzle cube.
(Shopkeeper showing Raju  all the items demanded)
Sunny: Uncle, please tell me how much amount I have to pay for the items selected.
Shopkeeper: Son, Your bill is of Rs.1200.
(Raju is bargaining with shopkeeper, and finally paid 1000 rupees to shopkeeper)
Raju: Thank you uncle, for this discount.
(Raju is coming with his friend (Sunny) back to home)
Sunny: Have you ever wondered that if we add whole demand made in India by all the consumers what amount will it be?
Raju: Hmm. It will be huge amount. Ok Bye. See you tomorrow.
(Raju reached home and have conversation with his father)
Father: Hello son, From where are you coming?
Raju: Today I went to market to purchase some articles from the money I received on my birthday.
Father: Okay Great! So what did you buy?
Raju: Parker Pen, One bracelet and 2 novels. This cost Rs.1000 after bargaining.
Father: Very nice.
Raju: Dad if we add all the Purchases (demand) made by all consumers in India and whole of the Sale (supply) by all sellers in our country it will be Huge amount. Does someone calculate that amount?
Father: Yes. When you purchased these things and that seller sold these things. This Purchase and sale was made at Individual person’s level and Individual Firm’s level. This is a small (Micro) Level.
But when we talk about purchases and sales made in whole country then this will be at the Biggest (Macro) level.
Our government collects and uses this data.