Micro and Macro Economics

Conceptual Clarifications
Definition and scope
Micro means small and macro denotes
large.
Ragnar Frisch of Oslo University
introduced in the 1920’s.
Individual and aggregates as other
meanings for Micro and macro
respectively.
This has attained popularity over the
years and it is used widely now.
Micro Economics
Deals with the analysis of small units of the
Economy.
Examples are Individual consumers,
producers or firms, small units like
industries or markets.
“Micro economics is the study of particular
firms, particular households, individual
prices, wages, incomes, individual
industries, and particular commodities.”
Micro Economics
Trees are not forest as a method of study.
Economists while making micro analysis
put an ‘economic unit’ or a very small
segment of the economy under microscope
Helps in analysing a very specific
component of our economic system.
Micro economic study is anlogous to the
study of various cells of economic
organism.
Importance of micro Economics
Classical writers explained how goods
were produced by the combination of
factors and how value was determined for
the final product and the distribution
which took place between different
factors of production.
All analysis done through micro.
Neo classical writers like Marshall
brought back the prominence.
Micro Economics-subject matter
Micro theory explains the conditions of
efficiency in consumption and production
Suggests suitable policies to promote
economic efficiency and welfare of the
people.
Theory of product pricing
Theory of factor pricing
Theory of Economic welfare.
Fields covered under Micro
Theory of product pricing: consumer
behaviour and theory of production and cost
Theory of Factor pricing: theory of wages,
rent, interest and profits
Since major part of micro economics deals
with pricing, product and factor, Micro
economics is called Price theory.
Applied also to International trade and
Public Finance.
Interdependance of Micro and Macro
All problems like wages, prices etc are
connected to the economy as a whole.
Micro economic problems can be well
understood and appreciated by taking into
consideration economy as a whole.
Take the entire system into consideration
Macro economics necessarily leads to the study
of micro economics and the later in turn leads
to the study of the former.
Example of building the house