Question

Distinguish between Micro-economics and Macro-economics.

Hint:

Micro = individual units, partial equilibrium; Macro = the economy as a whole, aggregates.

Answer 1

Step 1: Definitions:
Microeconomics studies the economic behaviour of individual units — a single consumer, firm, or industry — such as how a household chooses between goods or how a firm sets its price. Macroeconomics studies the economy as a whole using aggregates such as national income, general price level, and total employment.

Step 2: Scope and approach:
Microeconomics uses partial equilibrium analysis, examining one market or unit while holding others constant ("other things being equal"). Macroeconomics uses general equilibrium analysis, examining how all sectors of the economy interact simultaneously.

Step 3: Key variables studied:
Microeconomics deals with the price of a particular commodity, output of a firm, and individual demand/supply. Macroeconomics deals with aggregate demand, aggregate supply, national income, general price level (inflation), and the overall employment/unemployment rate.

Step 4: Nature of problems addressed:
Microeconomics addresses the problem of resource allocation (what, how, for whom to produce) at the level of a single unit. Macroeconomics addresses economy-wide problems like inflation, unemployment, and growth of national income.

Final Answer:
Microeconomics = study of individual economic units using partial equilibrium; Macroeconomics = study of the economy as a whole using aggregates and general equilibrium.