ECONOMIC ANALYSIS

MICRO MACRO

Definition: Micro economics

Microeconomics is how people deal with money, time, and resources. Microeconomics deals with the economic interactions of a specific person, a single entity or a company. These interactions, which mainly are buying and selling goods, occur in markets. In other words Microeconomics is the study of individual market. For instance an economist may study the market for compact discs, the firms that sell compact discs and any other groups that influence the price and availability of compact discs, such as the government.

Functions:
The function of microeconomic theory studies the economic behavior of consumers, resource owners, and business firms, who individually can play a decision-making role in a free market economy. Microeconomic theory is called price theory due to its functional nature related to individual business activities of households and firms, which studies the circular flow of goods and services from household to business firm. The theory analyzes the composition of such a flow and the way of price determination of the goods and services as well as price of the resources used.

Micro Economics activities:

In figure it says The component 1, the household activity , is concerned to sell the available economic recourses i.e.. Land, labor, and capital in the factor market and the firm mentioned in component-3 buys the inputs. The households are the buyers and firms are the sellers in the goods and services market.. The household spends money income received by selling their economic resources to buy goods and services. Likewise, firms spends money income received by selling goods and services to buy inputs like raw materials, labors, capital, land etc. This circular flow continues till the economy exists in the society.

In microeconomics, we study the following: 1. Theory of product pricing, which includes(a) Theory of consumer behavior. (b) Theory of production and costs. 2. Theory of factor pricing, which constitutes(a) Theory of wages. (b) Theory of rent. (c) Theory of interest. (d) Theory of profits. .

significance of Micro:
y y y

y y

y y

Microeconomics is of great help in the efficient management of the limited resources available in a country. Microeconomics is helpful in understanding the working of free enterprise economy where there is no central control. Microeconomics is utilized to explain the gains from international trade, balance of payments disequilibrium and determination of foreign exchange rate. It explains how through market mechanism goods and services produced in the community are distributed. It helps in the formulation of economic policies, which are meant for promoting efficiency in production, and welfare of the people. Microeconomics is the basis of welfare economics. Microeconomics is used for constructing economic models for better understanding of the actual economic phenomena.

Definition of Macro:
Macroeconomics is the study of economic system as a whole. Therefore it deals with the totals or aggregates national income, out put and employment, total consumption, saving and investment and the general level of prices

Importance
Operation of an Economy y Basis of the economy as a whole y Predictions y Economic Policies y It is helpful in removing difficulties of a particular firm y It is the basis of welfare economics
y

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