Economics is a social science that deals with the study of how individuals, governmental bodies, firms, and nations make decisions in allocating scarce resources in order to satisfy their unlimited wants and desires. It is a study of production and consumption of goods and services, and the transfer of wealth to produce and obtain those goods and services.
Economics is generally classified into two major categories, microeconomics and macroeconomics.
The term microeconomics was first coined by a Norwegian economist, Ragner Frich in 1993. Microeconomics is composed of two words- micro and economics. Micro has been derived from a Greek word ‘mikros’ which means small. Economics on the other hand, is the branch of knowledge concerned with production, consumption, and transfer of wealth for acquiring the produced goods and commodities.
Microeconomics is the branch of economics that focuses on the actions of individuals and industries. The dynamics include interaction between buyers and sellers, borrowers and sellers.
It analyzes certain aspects of human behavior, and shows how individuals and firms respond to changes in factor pricing as a result of interaction between demand and supply.
Features of Microeconomics
Study of individual unit
Microeconomics studies the market behavior of individual consumers and producers by dividing the whole economy into small individual units such as a product, a household, a firm, a market, etc.
Microeconomics is concerned with the basic theories of demand and supply that affect prices of factors of production (rent, wage, interest, and profit), and price of commodities in the market.
Microeconomics has a microscopic view of the economy as it studies the economic behavior of individual consumer, producer, market, etc. rather than the economy as a whole.
Microeconomics considers only a part of the market, a phenomena termed as ‘ceteris peribus’ to attain equilibrium.
Analysis of economic efficiency
The scope of microeconomics is majorly concerned with determining the most efficient way of utilizing scarce resources in order to satisfy the needs and desires of individual consumers and producers.
Construction of models
A range of complex phenomena comprised by microeconomics is made more understandable and expressive with the help of diagrams, charts, economic laws, etc. that explain the relationship between two or more economic variables.
Macroeconomics is the branch of economics that studies the behavior of an economy as a whole. It focuses on the aggregate changes that occur in the economy by analyzing the factors that influence the whole economy.
Macroeconomics studies the overall economic phenomena, such as inflation, GNP, problem of unemployment, aggregate consumption, economic growth, investment, etc.
Macroeconomics attempts to understand the causes and consequences of short-run fluctuations in national income, and helps to determine the reasons for long-term economic growth i.e. increase in national income.
Features of Macroeconomics
Study of aggregate economy
Macroeconomics is concerned with the study of economic behavior of the entire economy rather than individual units.
Analysis of aggregate demand and supply
Microeconomics studies the aggregate demand and supply model in order to explain the overall economic phenomena such as the GDP of a nation based on various components.
Assist in overall economic growth
An increase in total output of goods and services is termed as economic growth. The study of macroeconomic components like GDP, GNP, inflation rate, and unemployment rate helps to determine the overall economic growth of a state or country.
Formulation of rules and regulations
The study of macroeconomic variables provide a proper analysis for formulating and implementing polices that help to develop an economy in the best interest of all the participants in a given economy.