Differences between Microeconomics and Macroeconomics Session -2 Dr. Upma Paliwal

What’s the difference between Microeconomics & Macroeconomics? Microeconomics examines small economic units, the components of the economy. For example: individuals, households, firms, industries Macroeconomics looks at aggregates. For example: national output, overall price level, aggregate unemployment

Macroeconomics vs. Microeconomics To understand the scope and sweep of macroeconomics, let’s begin by looking more carefully at the difference between microeconomic and macroeconomic questions. MICROECONOMIC QUESTION MACROECONOMIC QUESTION Go to business school or take a job? How many people are employed in the economy as a whole? What determines the salary offered by a company? What determines the overall salary levels paid to workers in companies of similar industry ?

Macroeconomics vs. Microeconomics Microeconomics focuses on how decisions are made by individuals and firms and the consequences of those decisions. Ex.: How much it would cost for a university or college to offer a new course ─ the cost of the instructor’s salary, the classroom facilities, the class materials, and so on. Having determined the cost, the school can then decide whether or not to offer the course by weighing the costs and benefits.

Macroeconomics vs. Microeconomics Macroeconomics examines the aggregate behavior of the economy (i.e. how the actions of all the individuals and firms in the economy interact to produce a particular level of economic performance as a whole). Ex.: Overall level of prices in the economy (how high or how low they are relative to prices last year) rather than the price of a particular good or service.

It can be positive or normative Economic Analysis The Economic analysis is relatively important due to scarcity of resources. It involves the identification of economic problem, description, explanation and solution It can be positive or normative

Why Assumptions Economists use assumptions in order to simplify economics processes so that they are easier to understand. An assumption allows an economist to break down a complex process in order to develop a theory and later, the theory can be applied to more complex scenarios for additional study.

Why Assumptions continued… Assumptions cause economists to rely on unrealistic, unverifiable, and highly simplified information. Although simplifying can lead to a better understanding of complex phenomena, critics explain that the simplified, unrealistic assumptions cannot be applied to complex, real world situations. It is the act of taking for granted, or supposing a thing without proof, so lesser the assumptions, better it is.

Trade Off To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another. people are likely to make good decisions only if they understand the options that they have available. Making decisions requires comparing the costs and benefits of alternative courses of action.

Opportunity Cost The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

Utility An economic term referring to the total satisfaction received from consuming a good or service. A consumer's utility is hard to measure. However, we can determine it indirectly with consumer behavior theories, which assume that consumers strive to maximize their utility. Utility is a concept that was introduced by Daniel Bernoulli. He believed that for the usual person, utility increased with consumption but at a decreasing rate.

Thanks Queries