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Micro & Macro Economics:
Allocations of scarce resources in order to get maximum satisfaction is called economics. Economics is further divide into two parts.
**1. Micro Economics
- Macro Economics** A. Micro deals with individual single or particular consumer, producer, firm, industry or Market. While Macro deals with as whole like National income, employment level etc. B. Micro Economics is called Price Theory and Macro Economics is called Income theory. Price theory explains the composition or allocation of total production. Income theory explain the level of total production and why the level of total production and why the level rises and falls. Micro Economics In economics micro means single, individual or particular. Micro Economics means deals with single, Individual or particular consumer produce or Market etc. In conducting economics analysis, micro economics approach is on micro basis, generally an assumption of full employment in the economy as whole is made. C. Importance of Micro Economics Micro Economics has both theoritical and practical importance.
1) From the theoritical point of view it explain the function of
a free intense economics.
ā¢ It tells as how consumer and producer take the
decision for million of goods and services to consume and produce.
ā¢ It tells us how goods and services distributed
among them.
ā¢ It explain the determination of the relative prices
of various goods and services.
2) For Practical importance micro economics helps in the
formulation of economics policies calculated to promote efficiency in production and welfare of the masses.
D. Limitation of Micro Economics Micro Economics has same limitations. A. It cannot give an idea of the functioning of the economy as whole. B. It assume full employment which is rare phenomena, it is therefore, an unrealistic assumption. E. Macro Economics Or the Theory of Income and Employment Macro Economics deals as whole such as National Income employment, saving investment, total consumption, price level. Macro Economics deals also with how an economy grows. It determines the chief economic development and the various stages and process of economics growth. Study of macro economics is very important to get proper view of an economy. F. Limitation of Macro Analysis If has limitation of its own: A. Individual is ignored altogether. B. The Macro analysis over looks individuals difference for instance the price level may be stable but the prices of food grains may have gone up. C. While speaking of the aggregate it is also essential to remember the nature compound and structure of the components. G. Need for Integrating Macro and Micro Economics Micro and Macro Economics can't give adequate way to analysis the working of the economics system. So if we wish to get solutions of our main economics solution we should have to integrate the two approaches. We apply proper Integration of the Micro and Macro approaches because there are few macro problems which have no micro elements involved and few micro problems that are without macro aspects. H. Conclusion Thus if proves that subject matter of economics includes price theory (or micro economics), income and employment theory (macro economics) and growth theory. Simply we can say economics is a study of economics system under which men work and live.
b. Economics studies even those activities which are not expected to add to economic welfare of the society.For instance, those activities which reduce its welfare, such as activities leading to environmental degradation. c. Economics is study the production and consumption of goods and services which collectively affect our welfare. Therefore, it is inappropriate to restrict economics to the study of only tangible or material goods.This unnecessarily restricted the scope and subject matter of economics. Further, in view of social thinkers and medical professionals, there are several goods and services, the consumption of which does not add to the welfare of either the consumers or the rest of the society. Leading examples of such items include tobacco and addictive drugs. Such items may be termed ābadsā instead of āgoodsā.
3. Scarcity & Choice definition(Modern Approach) : This definition was put forward by
Robbins. According to him āEconomics is a science which studies human behavior as a
relationship between ends and scarce means which have alternative uses.
Features:
a. Human The ends or wants of an economy are unlimited in number and variety, and
they keep increasing with the passage of time. b. An economy always has shortage of resources compared with to the wants to be satisfied. c. It is possible to select between several alternative resources for satisfying a given want.Man has therefore, to choose between wants. d. Choice making or decision making is the means of tackling all these economic problems. Inability to satisfy unlimited wants with limited resources creates the problems of choice making i.e., fixing priority of wants to be satisfied.
Criticisms of this definition:
a. Critics of scarcity definition also hold the view that since it is possible to use knowledge of economics in an attempt to curing the ills of the economy, there is no justification in adopting an attitude of indifference towards the problems of unemployment, poverty, inflation, regional disparities, and low rate of economic growth. A better course would be to use our knowledge of economics in devising policies for achieving maximum possible economic welfare with minimum possible resource cost and human labour. b. The shortage of āmerit goodsā provides a very strong argument in hands of the critics of scarcity approach. Merit goods are those goods, the consumption of which benefits not only the consumers, but also the non-consumer. Examples of such goods are education, health, cleanliness, etc. Generally, the cost of production of such goods is high and a large section of the population is not able to pay their marketdetermined prices. Therefore, left to the market forces, their supplies tend to be insufficient. Obviously, the authorities should step in with measures to supplement their supplies and make them available to the society at affordable prices. c. Another argument for not agreeing with Robbins is the existence of several public services (like defence, law and justice, etc.) which cannot be provided by the market. It is not possible to sell them and recover production costs. Only the authorities can provide them by incurring expenditure out of their budgetary resources.
d. Robbins has made economics quite impersonal and colourless. By making it a complete positive science and excluding normative aspects he has narrowed down its scope. e. His definition does not cover the theory of economic growth and development. While Robbins takes resources as given and talks about their allocation, it is totally silent about the measures to be taken to raise these resources i.e. national income and wealth. f. Robbins assumed rationality on the part of economic units in their behaviour. But in real life situation, a man is influenced more by customs and habits than by rational outlook.
(iv) Growth Oriented definition This definition was introduced by Paul. A. Samuelson.
Professor Samuelson has also given similar but somewhat different definition of economics as given by Robbins.He has emphasised upon the twin themes of economicsā scarcity and efficiency.
According to the definition āEconomics is the study of how man and society choose with or without
the use of money to employ the scarce productive resources, which have alternative uses, to
produce various commodities over time and distributing them for consumption, now or in the future
among various person or groups in society.ā It analyses costs and benefits of improving patters of
resource allocation.
The above definition is very comprehensive in the sense that, it does not restrict to material well-being or money measure as a limiting factor. But it considers economic growth over time
Features:
a. Growth-orientation : Economic growth is measured by the change in national output over
time
b. Dynamic Allocation of Consumption : Similarly, under this definition, Economics is
concerned with the pattern of consumption, not only now but also in the future.
c. Distribution : The modern definition also concerns itself with the distribution of
consumption among various persons and groups in a society
d. Improvement of Resource Allocation : The definition also says that, economics analyses
the costs and benefits of improving the pattern of resource allocation. Improvement of resource allocation and better distributive justice are synonymous with economic development. Thus, issues of development of a less developed economy have also been made subjects of the study of economics
Economic
Activiites
& non-material,
economic & non-
economic activities.In
Marshall Opinion
Economics studies only
material activities.
economic activities.
3. Normtive &
Positive
Science
Marshallās definition is
based on normative
science. It dwells on
welfare aspect and
problem solving nature
of economics.
5 Robbinsās definition is based on the
concept of positive science.He said the
function of an economics is to explore and
explain and not to advocate and
condemn.An economists should be neutral
between ends,Economist is not to give
value judgements regarding merits and
demerits of law.
4. Classificatory
& Analytical
Definition
This definition is
classificatory as material
& non-material.only
material activities will
lead to material welfare..
This definition is analytical based
,centered on basic economic problems.
5. Applicability
to different
Economies
Marshall definition is
relevant only for
monetary capitalist
economy where
individual choice is free
and market oriented.
Robins definition is applicable to all
economies primitive or advanced.
Normative science / positive science:
Marshall is of the opinion that in Economics, we not only consider the problems as they
are but we also suggest that how the given problem should be tackled. It means
according to Marshall, Economics is basically a normative science.
Robbins thinks otherwise. He says that economists must be just neutral observers of
economic events around them, ignoring their personal likings. They can talk of facts
only. Hence Robbins believes that Economics is basically a positive science in which the
economists describe the economics facts as they are.
1.1.3 Subject Matter of Economics
The subject matter of economics is presently divided into two major branches. Micro Economic and
Macro Economics.
SN Heading Micro Economics Macro Economics
1.. It is the study of
individual economic units
of an economy
It is the study of economy as a whole and its
aggregates.
2. It deals with individual
income, individual prices
and individual output, etc.
It deals with aggregates like national
income, general price level and national
output, etc
3. Its Central problem is
price determination and
allocation of resources.
Its central problem is determination of level
of income and employment
4. Its main tools are demand
and suply of a particular
commodity/factor..
Its main tools are aggregate demand and
aggregate supply of economy as a whole
5. It helps to solve the It helps to solve the central problem of full
- The study of both is equally vital so as to have full knowledge of the subject-matter of economics.
- The contemporary economists are concerned with both micro economics and macro economics.
