1.

0 DEFINITION OF MACROECONOMIC
Macroeconomics is the study of the behavior of the overall economy. Thus macroeconomics

focuses on broad-based indicators of national economic performance, like GDP output,

balance of trade, and employment levels. Macroeconomics can be contrasted against

microeconomics, which is the study of the economic behavior of the individual firm and

consumer.

Macroeconomics is focused on the movement and trends in the economy as a whole, while in

microeconomics the focus is placed on factors that affect the decisions made by firms and

individuals. The factors that are studied by macro and micro will often influence each other,

such as the current level of unemployment in the economy as a whole will affect the supply

of workers which an oil company can hire from, for example.

The distinction between microeconomics and macroeconomics can be described in terms of

small-scale vs. large-scale or in terms of partial vs. general equilibrium. Perhaps the most

important distinction, however, is in terms of the role of equilibrium. While issues in

microeconomics seldom challenge the notion of a naturally occurring equilibrium, the

existence of business cycles and, especially, unemployment suggests to many observers that

macroeconomics raises issues of a different character.

The field of economics that studies the behavior of the aggregate economy. Macroeconomics

examines economy wide phenomena such as changes in unemployment, national income, rate

of growth, gross domestic product, inflation, and price levels.

Page 1 of 4
Macroeconomics is a widely adopted intermediate-level textbook that communicates the

principles of macroeconomics in a comprehensible style.

1.1 DEFINITION OF MICROECONOMIC

Microeconomics is the study of specific individual units; particular firms, particular

households, individual prices, wages, individual industries particular commodities. The

microeconomic theory or price theory thus is the study of individual parts of the economy.

Microeconomics is a branch of economics that studies the behavior of how the individual

modern household and firms make decisions to allocate limited resources.[1] Typically, it

applies to markets where goods or services are being bought and sold. Microeconomics

examines how these decisions and behaviors affect the supply and demand for goods and

services, which determines prices, and how prices, in turn, determine the quantity supplied

and quantity demanded of goods and services.

This is in contrast to macroeconomics, which involves the "sum total of economic activity,

dealing with the issues of growth, inflation, and unemployment." Microeconomics also deals

with the effects of national economic policies (such as changing taxation levels) on the

aforementioned aspects of the economy. Particularly in the wake of the Lucas critique, much

of modern macroeconomic theory has been built upon 'micro foundations' i.e. based upon

basic assumptions about micro-level behavior.

One of the goals of microeconomics is to analyze market mechanisms that establish relative

prices amongst goods and services and allocation of limited resources amongst many

alternative uses. Microeconomics analyzes market failure, where markets fail to produce

efficient results, and describes the theoretical conditions needed for perfect competition.

Significant fields of study in microeconomics include general equilibrium, markets under

Page 2 of 4
asymmetric information, choice under uncertainty and economic applications of game theory.

Also considered is the elasticity of products within the market system.

Microeconomics and economic efficiency. The microeconomic theory seeks to explain

whether the problems of scarcity and allocation of resources so determined are efficient.

Economic efficiency involves (a) efficiency in consumption (b) efficiency in production and

distribution and (c) overall economic efficiency. The price theory shows under hat conditions

these efficiencies are achieved.

Page 3 of 4
Page 4 of 4