Micro and Macro Economics

The whole economic theory is broadly divided into two parts – Micro economics and Macro economics. These two terms were at first used by Ragner Frisch in 1933. But these two words became popular worldwide and most of the economist using nowadays. The term ‗micro‘ and ‗macro‘ were derived from Greek words ‗Mikros‘ and ‗Makros‘ meaning ‗small‘ and ‗large‘ respectively. So micro economics deals with the analysis of an individual unit and macro economics with economy as a whole. For example, in micro economics we study how price of goods or factors of production are determined. In macro economics we study what are the causes of high or low level of employment. So, according to Edwin Mansfield – ―Micro economics deals with the economic behaviour of individual units such as consumers, firms, and resource owners; while macro economics deals with behaviour of economic aggregates such as gross national product and the level of employment.

Meaning of Micro – economics

The term micro was originated from Greek word ‗Mikros‘ which means small. Hence, microeconomics is concerned on small economic units like as individual consumer, households, firms, industry etc.

Microeconomics may be defined as the branch of economic analysis which studies about the economic behaviour of individual economic unit may be a person, a particular households, a particular firm and an industry. The main objective of micro – economics is to explain the principles, problems and policies related to the optimum allocation of resources. According to K. E. Boulding, ―Microeconomics is the study of particular firm, particular households, individual price, wage, income of the industry and particular commodity‖.

It is the study of individual tree not a whole forest. Hence, microeconomics tries to explain how an individual allocates his money income among various needs as well as how an individual maximize satisfaction level from the consumption of available limited resources. Microeconomics also explains about the process of determination of individual price with interaction of demand and supply. It helps to determine the price of the product and factor inputs. Therefore, it is also called as price theory or demand and supply theory. Simply microeconomics is microscopic study of the economy.

Meaning of Macro – economics

The term macro-economics is derived from Greek word ―Makros‖, which means ―big‖. Hence, macro-economics studies not individual units but all the units combined together or the economy as a whole. Since it studies the economy in aggregate. It studies national income, national output, general price level, total employment, total savings, total investment and so on. It is also called ―aggregate economics‖ or the ―income theory‖.

According to K.E. Boulding – ―Macro-economics deals not with individual quantities but with aggregate of these quantities, not with individual incomes, but with national income, not with individual prices but with price level, not with individual output but with national output.‖

J.M. Keynes made an outstanding contribution in the development of macro-economics. It is also known as Keynesian Phenomenon.