The modern economists divided economics into: Microeconomics,and Macroeconomics

1. Micro and Macroeconomics
MD Siyam HossainMD Siyam Hossain
Bangladesh Institute of Business & Technology.Bangladesh Institute of Business & Technology.
Narayangonj,DhakaNarayangonj,Dhaka
Dhaka,BangladeshDhaka,Bangladesh
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2. Division of Economics
 The modern economists divided economics into:
Microeconomics, and
Macroeconomics.
1. Microeconomics
 An economy could be looked as a whole or in terms of its decision-making units
 Microeconomics considers economy as units of smaller parts
Microeconomics considers and studies:
 Consuming units (individual consumers and households)
 Production units (firms, farms, businesses and mining concerns)
 Individual production factors (labourers, landowners, capitalists, entrepreneurs), and
 Individual industries (textiles, iron and steel, toy making, transport, power production
and supple, telecommunication, etc)
Microeconomics studies the behaviour:
 Consumers,
 Resource owners
 Business firms, etc
 Flow of factors of production (land, labour, capital) from resource owners to business
firms, and
 Flow of goods and services from business firms to consumers

3. 1.1 Function of Microeconomics
Microeconomics explains:
 The functioning of the free enterprises
 The decisions making criteria of the producers
 The decisions making criteria of millions of consumers
 How through market mechanism goods and services are produced
and distributed in the community
 The price building process of products and productive services
 It helps in the formulation of policies for promoting efficiency in
the production and the welfare of the society
 It tells us how economy operates, which is its positive role
 It explains how it should it operate to promote general welfare of
the society, which is normative role

4. 1.2. Limitation of microeconomics
Microeconomics suffers from following limitations:
 It cannot give any idea how the whole economy functions
 It can not explain why some units of the economy flourish and at the same
other suffer from crisis
 Microeconomics assumes full employment, which is unrealistic
 In capitalistic economic system, full employment is attained very seldom and
only for short time
2. Macroeconomics
 Macroeconomics looks economy as a whole
 Macroeconomics is concerned with aggregates and average of the entire
economy
 It is also denoted as Income Theory
Macroeconomics is concerned with:
Average National Income,
Aggregate output,
Total employment,
Aggregate demand,
Aggregate supply,
Average general level of price, etc.

5. Macroeconomics studies:
How average and aggregate values are determined
Example: NI, GDP, employment, demand and supply, general
level of price, etc
What causes fluctuation in the NI, GDP, employment, price
level
How the economies grow, and
How maximum employment and income could be achieved?
Macroeconomics theories have been developed mainly in the
Post-Keynesian period
It developed in the last 50 years

6. 2.1 Utility of Macroeconomics
Following are the usefulness macroeconomics:
 It helps understanding complicated fluctuation of economic
development
 It provides a bird’s eye view of the national economy and
economic world
 Microeconomics is useful to formulate policies for growth and
stability of the economy
 It is useful to regulate aggregate employment and national income
 It helps plan national economic growth rate
 It is useful to plan national wage policy
 It helps understanding economy in its dynamic aspect

7. 2.2 Limitation of Macroeconomics
Macroeconomics has following limitations:
 Macroeconomics ignores the individual actors of the economy
 However, individual welfare is the main aim of economics
 So, increasing national savings at the cost of the individual
welfare cannot be wise
 Macroeconomics overlooks individual difference
 For example, the general price level may be stable, but price of
food grains can ruin the poor

8. 3. Need for Integrating micro and macroeconomics
 Microeconomics cannot give any idea how the whole economy
functions
 It cannot explain why some units of economy flourish, but at the
same time other has crisis
 Macroeconomics ignores the individual actors of the economy
altogether
 However, individual welfare is the main aim of economics
 Besides, it overlooks individual economic development
 It is essential to consider the composition and structure of the
components
 So microeconomic and macroeconomic theories must be
integrated to understand the functioning of the whole economy

9. 4. Major Economic Problems
As resources are scarce:
Major economic problems is best possible use of resources
Ensure maximum satisfaction for consumers
Maximum profit for producers
In short, fundamental economics problems are:
What is to produce?
How to produce?
For whom to produce?
Are the resources economically used?
How full employment is to ensure?
How satisfactory efficiency of national economy could be
achieved?
How satisfactory growth could be achieved?

10. 4. Major Economic Problems
As resources are scarce:
Major economic problems is best possible use of resources
Ensure maximum satisfaction for consumers
Maximum profit for producers
In short, fundamental economics problems are:
What is to produce?
How to produce?
For whom to produce?
Are the resources economically used?
How full employment is to ensure?
How satisfactory efficiency of national economy could be
achieved?
How satisfactory growth could be achieved?