Micro Economics and Macro Economics, Distinction between Micro and Macro Economics, Merits and demerits of Micro and Macro Economics

1. Dr. B. H. DAMJI
Associate Professor & Head,
Department of Economics,
D.B.F. Dayanand College
of Arts & Science,
Solapur

2. Micro and Macro Economics

3. Micro and Macro Economics are
the two approaches to economic
analysis
• Micro Economics relates to the study of
individual economic units.
• Macro Economics is a study of the economy
as a whole.
• Ragnar Frisch was the first to use the terms
“Micro and Micro” in Economics in 1933.

4. •What is Micro Economics?
• It is the study of the economic actions of
individuals and small groups of individuals.
• Importance of Micro Economics
• To understand the working of economy
• To provide tools for economic policies
• Helpful in the efficient employment of
resources
• Help to business executive

5. Contd.
• Helpful in understanding the problems of
taxation.
• Helpful in international trade.
• To examine the conditions of economic
welfare.
• The basis for prediction.
• Construction and use of models.
• Useful for firms

6. Limitations of Micro Economics
• Unrealistic assumptions.
• Based on principle of non-intervention.
• Study of entire economy is neglected.
• National economic problems are neglected.
• Possibility of false conclusion.

7. Contd.
• Conclusions are not applicable to aggregates.
• Uncertainty.
• Economic units are not isolated or separate.

8. What is Macro Economics?
• It is the study of aggregates or averages
covering the entire economy.
• Importance of Micro Economics
• To understand the working of economy.
• Useful in economic policies.
• Useful in general unemployment.
• Important in national income.

9. Contd.
• Useful in economic growth.
• Significant in monetary problems.
• Business cycles.
• For understanding the behavior of individual
units.

10. Limitations of Macro Economics
• Fallacy of composition.
• To regard aggregates as homogeneous.
• Aggregate variables may not be important
necessarily.
• Indiscriminate use of macro economics
misleading.
• Neglect of individual study.
• Statistical and conceptual difficulties.

11. Distinction between Micro and
Macro Economics
• Micro Economics is a study economic actions
of individuals or group of individuals.
Macro Economics is a study of economic
behaviour of aggregates or entire economy.
• Maximization of utility is a objective of
demand in Micro Economics.
Macro Economics includes objectives like full
employment, price stability, economic
growth etc.

12. • The price mechanism is a base in a study of
Micro Economics. The price of equilibrium is
determined through demand and supply.
While the basis of Macro Economics includes
national income, production, employment
and general price level which is determined
through aggregate demand and aggregate
supply.
• The study of Micro Economics was started by
Adam Smith
The study of Macro Economics was initiated
by Malthus and the study was made more
popular by J. M. Keynes

13. • The study of Micro Economics was developed
by Ricardo, J. B. Say, J. S. Mill, Maruice Dobb,
Boulding, Marshall, Hicks, Samuelson, Mrs.
Joan Robinson etc.
The study of Macro Economics was
developed by economists like Sismondi, Karl
Marx, Walras, Knut Wicksell, Fisher, Castle,
Hayek, Hawtrey, Keynes.

14. • Micro Economics is based on various
assumptions like rational behavior, other
things being equal etc.
Macro Economics is not based on such
assumptions. It takes into account the
variables like national income, National
production, employment and general price
level.
• Micro Economics is considers partial
equilibrium.
Macro Economics is based on general
equilibrium

15. THANK YOU