![]() “Macroeconomic Theory is the theory of income, employment, prices and money.” Macroeconomics is the study of economic system as a whole. “The term macroeconomics’ applies to the study of relation between broad economic aggregates”. In its approach microeconomics takes, as given, the total output, employment and spending for all goods and services and proceeds to examine how output and employment are allocated among various individual industries and firms and how the prices of various products of these individual firms are established. It also concerns how the individual consumer determines the distribution of its total expenditure amongst many products and services so as to attain maximum utility. For example, microeconomics may explain how single firm decides the sale price of a particular product, what amount of output will maximise its profits, and how it determines the lowest cost combination of labour, capital, materials and other inputs. The unit of study is the part rather than the whole. Thus, it would tell us the position in which the unit would be in equilibrium. A truly microeconomic study of a unit would, therefore, enable us to know the behaviour of a particular unit and determine certain magnitudes like the quantum of things it would buy, produce or sell. That is, if the environmental data-the stimuli-what they are, we would say that the unit would behave in a particular manner. Its interest is in relative prices of particular goods and services.” In other words, while the behaviour of a particular unit is under study, it has to be assumed that the environmental data are given. It considers problems of income distribution. Given this presumption, we proceed to know as to how a consumer or a producer attains equilibrium as such “microeconomics deal with division of total output among industries and firms, and the allocation of resources among competing uses. According to Brooman, “it seeks to explain the working of markets for individual commodities and the behaviour of individual buyer and seller.”Īn important fact to be borne in mind about microeconomics is that there we assume the prevalence of full employment in the economy as a whole. ![]() Boulding, “Microeconomics is the study of particular firms, particular households, individual, prices, wages, incomes, individual industries, particular commodities”. In a nutshell, it focuses attention entirely on the individual or single firm or industry to the exclusion of the social system.Īccording to Prof. If we want to know something about the employment of labour in the microeconomics, we study the employment of a particular type of labour. ![]() Coming to prices, we study the price level of the economy. In microeconomics, we study the demand of an individual firm or industry. Here, we study the economic motives and behaviour of individual consumers and producers and the principles involved in organizing and operating the individual firms or industries.įor example, we lake an individual consumer and see how he attains the equilibrium we, therefore, need not study the consumption of the economy as a whole. It is in microeconomics that concept of marginal analysis assumes special importance, as some of the important laws of microeconomics are based on it. In micro-economy we study the various constituents or parts of the economy and not as a whole.
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