State the difference between macro and micro economics. How is macro and micro analysis helpful in determining business policies?
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What is Micro and Macro Economic Analysis? Explain their importance in business decisions.
Explain the difference between micro (micro) and macro (broad) economics.
- Meaning of Microeconomics – The word Micro is derived from the Greek word ‘Mikros’, which literally means ‘microscopic’. Therefore, the meaning of Micro Economics is from that branch of knowledge, under which small parts of the system are studied. In other words, microeconomics is that branch of knowledge in which specific economic units are studied, such as specific individuals, specific firms, and specific industries, etc. In this the unit of study is consumer, family, firm or industry.
- According to Pro. Boulding, – “In microeconomics, a firm, a household, individual price, wages, income, industry and goods are studied.”
- According to Henderson and Quant, – “Microeconomics is the economic study of individuals and definite groups of individuals.” is the study of actions.
Importance of microeconomics in business decisions – or – Importance or use of microeconomics –
The importance and use of microeconomics in business decisions can be explained as follows –
- Helpful in personal economic decisions – Individual units in microeconomics is studied. Therefore, with its help, economic decisions can be taken easily for individual units. A consumer can decide what quantity of a good he will buy at different prices. Similarly, a firm can take decisions related to the determination of the quantity of production at different levels of production cost.
- Helpful in the overall study of economic problems – Economics studies economic problems while small units are studied in micro economics. It is helpful in understanding the whole economy and in the overall study of the economic problem. Small units together make up the whole economy. Therefore, after studying small units, it becomes easy to study the problems of the whole economy.
- Economic policy – Helpful in determining – Micro economics is helpful in determining economic policies. The appropriateness of various economic policies by the government is determined with reference to the effects on individual units. In these policies, the effects on the price, wages and personal consumption of a particular commodity can be examined.
- Examination of economic welfare – Under economics, information about personal units, such as personal consumption, personal income, personal savings, personal investment, standard of living and personal economic decisions etc. is obtained. With its help, information about the effects of public expenditure and public income can also be obtained. Taxation is done to get public income. Public has to sacrifice through taxation and public gets benefit from public income. And on the basis of these two information about economic welfare can be obtained. If the profit is greater than the sacrifice, then economic welfare will increase, otherwise not.
- Helpful in regional policy making – With the help of micro economics, study of a specific area or a specific use can be done. Necessary suggestions can be given by studying the policy of the government in the context of the problem of the industry related to it. For example, the problem of cotton textile industry can be studied in the context of government policy and necessary suggestions can be given.
- Helpful in decision making of managers – Micro economics is helpful in decision making of business managers. Information about the demand and cost of production can be obtained with the help of micro economics. As a result, the manager can take effective steps in taking decisions related to determining the price and quantity of production.
- Study of flow of goods and services – Microeconomics is also called price theory. Therefore, pricing of goods and services is done on this basis only, which shows how the flow of goods and services is happening from families to business and similarly from business to families.
- Meaning of Macroeconomics – The word Macro is derived from the Greek word ‘Makres’ which literally means comprehensive or comprehensive or comprehensive. Therefore, Macro Economics means that branch of knowledge or study, under which units related to the entire economy are studied. In other words, the economics in which the averages related to a large group or the whole economy are studied, it is called macroeconomics, such as national savings, total investment, total consumption, general price level, total employment, national Production and general cost etc.
- According to Pro . K.E. Boulding,- “Macroeconomics does not study individual units but those aggregates in which national income is studied in place of individual income, price level in place of individual prices, and national production in place of individual production.” “”
- In the words of Prof. Chamberlain,- “The macro or comprehensive model explains the total relationships ,
Importance of macroeconomics in business decisions – or – Importance or use of macroeconomics – The importance of macroeconomics in business decisions can be explained in this way –
- Helpful in understanding the complexity of the economy – Complexities are increasing continuously in the modern economy. Have been In macroeconomics, these complexities are studied and easily understood. Not only this, light can also be shed on changes, interrelationships and economic organizations in the economy from macroeconomics.
- Limitations of Microeconomics – Some economic problems are such that they can be studied only in macro form, such as national income, revenue and general price level etc. The laws of microeconomics can be formulated and verified only by form. Therefore, due to the limitations of microeconomics, macroeconomics has become useful.
- Helpful in economic planning – The importance of economic planning is continuously increasing in the modern era. It has come to be considered as the main instrument of economic development. Under this, the work of estimation of natural resources, determination of objectives and goals of different sectors, coordination in different sectors, formulation of economic policies and achievement of goals etc. are accomplished. Economics proves to be very helpful and useful in conducting all these tasks.
- Helpful in formulating proper economic policies – Due to welfare government, economic planning and increasing complexity of economic problems, the importance of government is continuously increasing in the economic field. The government formulates policies related to production, trade, revenue and price etc. for the operation of the economy. Macroeconomics presents a picture of the entire economy, which helps a lot in policy making.
- Study of changes in the price level – Explaining the effects of increase (currency expansion) or decrease (currency contraction) in the general price level, macroeconomics tells that which section of the country benefits from currency expansion or contraction and which section Will be at a loss. On the basis of this, the government can make policies for the maximum welfare of different sections of the country and prevent the adverse effects of currency expansion and contraction.
- Analysis of general unemployment – The main reason for unemployment is lack of effective demand. To overcome this, total investment, total production, total income and total consumption should be increased so that effective demand can also increase. In this way, macroeconomics proves helpful in the causes, effects and remedies of general unemployment.
- International comparison – The facts of macroeconomics provide important information for international comparative analysis. For example, a comparative review of per capita national income, consumption or savings between different countries requires only macro-oriented information.
Difference between micro and macro economics –
Many things of macro economics are the subject matter of economics. The units which are studied under micro economics, those units can be large and very large which will be the subject of macro economics. In this way, it has become completely clear that there are differences between them on many grounds, which are as follows –
| Sr. No. | Micro economics | Macro economics |
|---|---|---|
| 1 | This is the branch of knowledge in which specific economic units are studied, such as specific individuals, specific firms and specific industries etc. | Whereas units related to the entire economy are studied in it, such as national income, national savings, total investment, employment etc. |
| 2 | It explains the fluctuations in individual firms, industries and production units. | While it is affected by the ups and downs of the entire economy, economic recession. Explains depression or economic boom. |
| 3 | It is related to cost analysis. | While it is related to income analysis. |
| 4 | Its scope is limited to rules based on marginal analysis. | While its scope extends to the analysis of problems related to the entire economy. |
| 5 | Its subject-matter is the pricing of goods and services, their allocation to various and remuneration determination of work resources etc. | While its subject-matter is the level of national income, study of its effective factors and consequences, income, employment, savings and investment etc. |
| 6 | Its rules are mainly based on marginal analysis. | While its rules are not based on any one type of analysis, but are very comprehensive. |
| 7 | It helps individual units, firms and industries to reach optimum position. | While it helps in bringing the whole economy to optimum condition and economic stability. |
| 8 | Microeconomics is simpler than macroeconomics. | Whereas macroeconomics is more complex than microeconomics. |
| 9 | Microeconomics is used in decision making and determination of various policies of a firm or industry. | While it is used in solving national economic problems, taking economic decisions at the state level, determining economic policies and policy-making at the international level. |
| 10 | Due to the increasing complex problems of today, the importance of this economics is decreasing. | While it is more helpful in solving these problems, the importance of this economics increases as compared to micro economics. |
