Patuakhali Science and Technology University

Assignment Topic: Micro Economics and Macro Economics

Course title: Micro Economics

Course code: 031111013

Submitted to:
Professor Dr. Anup Kumar Mandal
Department of Economics and Sociology
Faculty of Business Administration
Patuakhali Science and Technology University, Patuakhali-8602

Submitted by:
Tanvirul Alom
Student ID: 2203006, Registration No: 11275
Semester-01, Level-01, Faculty of Business Administration
Patuakhali Science and Technology University, Patuakhali-8602

Submission Date: 29 February, 2024

 Micro Economics & Macro Economics

Economics:
“Economics is the science which studies human behavior as a relationship
between ends and scarce means which have alternative uses.”

Economic is a study about how individuals, businesses and governments make choices on
allocating resources to satisfy their needs. These groups determine how the resources are
organized and coordinated to achieve maximum output. They are mostly concerned with the
production, distribution and consumption of goods and services.

Economics is divided into two important sections, which are: Macro-Economics & Micro-
Economics. Macro Economics deals with the behavior of the aggregate economy and Micro
Economics focuses on individual consumers and businesses.

Micro Economics
Micro Economics is the study of decisions made by people and businesses regarding the
allocation of resources and prices of goods and services. The government decides the regulation
for taxes. Microeconomics focuses on the supply that determines the price level of the
economy. It uses the bottom-up strategy to analyze the economy. In other words,
microeconomics tries to understand human’s choices and allocation of resources. It does not
decide what are the changes taking place in the market, instead, it explains why there are
changes happening in the market. The key role of microeconomics is to examine how a
company could maximize its production and capacity, so that it could lower the prices and
compete in its industry. A lot of micro economics information can be obtained from the
financial statements.

The key factors of micro economics are as follows:

 Demand, supply, and equilibrium
 Production theory
 Costs of production
 Labor economics
Examples: Individual demand, and price of a product.

According to Prof. K.E Boulding, “Microeconomics is the study of particular firms, particular
households, individual, prices, wages, incomes, individual industries, particular commodities”.

According to J.M Henderson and R.E Quandtsay, “Micro Economics is the study of
Economic action of individuals and well defined groups of individuals.”
Subject Matter of Micro-Economics:
Following are the subject matter of Micro-Economics:

 Individual Economic activities: Micro Economics deals with the Economic activities
of an individual in a society how to earn money and how to expend the earned money,
different problems regarding these activities and how to solve these problems, all these
are discussed in Micro-Economics.
 Determining the prices of commodities: The main task of Micro- Economics is to
discuss how prices of commodities in the market is determined through the interaction
of demand and supply of commodities, how much goods and services are transacted at
those prices, everything is discussed in the micro Economic analysis.
 Determine the input price: the four major factors of production are land, labor, capital,
and organization. The returns for the factors are rent, wages, interest and profit. How
to determine rent for land, wage for labor, interest for capital and profit for organization
are discussed in micro Economics.
 Analyzing different market structures: On the basis of competition markets are
classified of two types:
o Perfect competition market
o Imperfect competition market

Imperfect competition market are of different types like I) Monopoly II) Duopoly
etc. different types of market structures are discussed in micro economics.

 To analyses the consumer's behavior: Rational consumers go to the market with a

certain amount of money. They coordinate between the ups and downs of commodity
prices and his money expenditures Consumer's behaviors are how a consumer will buy
at a lower price. In Micro-Economics consumer’s behavior or how a consumer attains
equilibrium is discussed.
 Production related discussion: the producers take decision in two different ways.
Either be selects least cost combination in producing a certain fixed amount of goods.
Or he may maximize his level of production from a given cost. How the level of
production attains equilibrium in his production process is discussed in micro-
economics.
 Optimum distribution of wealth: The maximization of social welfare through
optimum distribution of produced goods is discussed in micro economics. If the
distribution of wealth remaining unchanged then other consumer's welfare will be
minimum. Similarly, if through redistribution of wealth, other producer's production
remaining unchanged, minimum one producer's production has increased then it can be
said that optimum distribution of wealth has been ensured. All these are discussed in
micro economics.

From the above discussion we can observe that the scope of Micro-Economics is very wide.
For these reason discussion of micro Economics is very much significant.
Limitation of Micro-Economics:
Micro Economics deals with the behavior or small part and units of Economics and the
functions. But micro Economics has some limitations which are discussed below

 Consideration of unrealistic assumption: In Micro-Economics analysis most of the

cases we take resort or some assumptions which are not realistic. Moreover, for the
change of those assumptions theories may not operate.
 Full employment: Most of the theories of Micro-Economics are based on full
employment. But in real world full employment is quite absent.
 Laissez faire: Most of the micro Economic concepts are based on laissez-faire. But the
idea of laissez-faire is not existed anywhere. Therefore, these theories cannot be
compared to real world.
 Considering other things remaining unchanged: In micro Economics to analyses the
relationship of one variable with another variable other thing remaining constant is
considered which is not realistic.
 Macro views are neglected: In Micro-Economics small units are analyzed separately.
Consequently, the Economic system as a whole is neglected. Trying to have an overall
view through summing the small units of Economy may be fruitless.
 Micro concepts are narrow concepts: As Micro-Economics analysis is done as small
part therefore micro concept are comparatively narrow as well as its scope is also
narrow.

Although there are some limitations in micro Economics in spite of it from the viewpoint of
analyzing Economic variables micro Economics has great importance.

Macro Economics
The "Macro" is derived from Greek word "Macros" which means large. So from view point of
meaning it can be said that the discussion of Economic affairs from the perspective of wider
view can be termed as Macro Economics. Macroeconomics is a branch of economics that
depicts a substantial picture. It scrutinizes itself with the economy at a massive scale, and
several issues of an economy are considered. The issues confronted by an economy and the
headway that it makes are measured and apprehended as a part and parcel of macroeconomics.
Macroeconomics studies the association between various countries regarding how the policies
of one nation have an upshot on the other. It circumscribes within its scope, analyzing the
success and failure of the government strategies. In macroeconomics, we normally survey the
association of the nation’s total manufacture and the degree of employment with certain
features like cost prices, wage rates, rates of interest, profits, etc., by concentrating on a single
imaginary good and what happens to it. The total production, aggregate demand, aggregate
supply, a capital investment, aggregate consumption, aggregate savings, total employment,
price level macro-Economics etc. are the subject matter of macro-Economics. Therefore, the
overall analysis of various Economic variables, the interdependency of inter sector of Economy
is terms as Macro Economics.
K.E Boulding says, "Macro-Economy deals not with individual income, but with national
income, not with individual price but with general price level, not with individual output but
with national output."

R.E Quandt says, "Macro-Economy which is the study of broad aggregates such as total
employment and national income."

The important concepts covered under macroeconomics are as follows:

 Capitalist nation
 Investment expenditure
 Revenue
Examples: Aggregate demand, and national income.

Objectives of Macro Economics:

Macro-Economic discuss Economic activities in broader aspect and in overall context National
income aggregate demand and Supply employment, Price level import- export etc. are the
subject of macro-Economics. From and objective this, we can realize that the scope of Macro-
Economics in widespread. The following are the objectives of Macro-Economics:

 Full Employment: One of the most important objectives of Macro-Economics is to

achieve full employment. But full employment doesn't necessarily mean that all the
people are employed. In the country all the people capable to work or willing to work
or searching for work at current rate of wage are under employment then it is termed as
full employment. If it is possible to reduce the unemployment and employment can be
increased then aggregate output and aggregate demand increases and development of
the country can be enhanced. For this reason, increase the level of employment or to
achieve the full employment is one of the most important objectives of Macro-
Economics.
 Maintaining the Stability of Price Level: The ups and downs price level severely
hampers the public life or Economy of a country. Gradual increase in price level creates
inflation in the Economy Avoiding both inflation and deflation and to maintain stability
of price level is an important objective of Macro-Economics
 Increasing GNP: The money value of all final goods and services produced in a certain
fiscal year is termed as GNP. If GNP or per capita GNP is increased, then the standard
of living of the population of a country increases. For this reason, increase the aggregate
output GNP is one of the most important objectives of Macro-Economics.
 To Increase the Rate of Production: Frequently it is observed that the real amount of
production is less than the expected production In this situation, it is possible to increase
the rate of production then to achieve the expected level of production. Through
increasing investment and improving technology the rate of production can be
increased. It is the objective of Macro-Economics to the desired level of rate of product.
 Removing the Inequality of Income: If capitalism is prevailing in the Economy then
income inequality will increase day by day. If gap between the poor and the rich is
increased then social welfare is hampered in this situation through adopting expenditure
policy, taxation policy etc. inequality in the distribution of wealth can be removed and
it is the objective of Macro-Economics.
  Balance of Payment: The account of transaction of the people of a country with the
transaction of the people of another people.

Scope of Macro Economics:

Macro-Economics Reviews as a Economy as a whole 1 The subject matter which the macro
economies reviews are the activities of macro-economies which are discussed below:

 Aggregate demand and Aggregate supply: Aggregate demand and Aggregate supply
in macro-economies analysis aggregate demand as well as aggregate supply are two
important issues. How aggregate demand and aggregate supply are determined and
general equilibrium is achieved through mutual interaction of the two is an important
topic to be discussed in macro-Economic analysis.
 National income: How national income is computed explanation of its different
components problems of computing national income, increase and decrease of it,
determining equilibrium level of national income are the scope of macro-Economic
analysis.
 Consumption and savings: The determinants of consumption and savings nature of
consumption and savings short term and long-term consumption and savings functions
etc. ideas are discussed in Macro-economies.
 Trade cycle: The Economy of a country is cyclically changes. Sometimes boom in
Economy arises, sometimes depression is observed. There macro- Economic analysis
is find out the causes of fluctuations in the trade. How to be escaped from the
fluctuations of trade cycle regarding significant discussions are provided by macro-
Economic analysis.
 Investment: For advancing Economy to a well-off way analysis regarding investment
in essential How to increase investment, how selection of project among varieties of
invest, how increase in investment can create further income can be well discussed in
macro-Economic analysis.
 Inflation: During n price hike this modern era is frequently observed Inflation creates
crisis in Economy is natural phenomena. The cause and effect and measures are
discussed in Macro-Economics.
 Depression: Depression is a situation in the Economy wherein unemployment is highly
observed as well as aggregate demand is declined. Price level decreases purchasing
power of people reduces. Pessimism is seen every corner of Economy. Why depression
is created. How its wideness and deepness can be measured. The way to come out from
this depression all these are discussed in scope of Macro economies.
 Monetary and fixed policy: The way of implementation of governmental varieties of
activities is to practice the instruments of money as well as fiscal policy. In Macro-
Economics widespread discussion regarding monetary and fiscal policy is done.
 Economics growth: How Economy of a country gradually is to be expanded, that
means, how Economic growth can be achieved, is discussed with importance in Macro-
Economies.
 Demand for money and supply of money: For daily necessities and other purposes
demand for money is created. On the other hand, paper money hand through paper
money and metallic coin government provide with the supply of money. The demand
 for money and supply of money influence the overall Economic activities. These are
available in the discussion of Macro-economies.
 Economic Stability: For economic development Economy should achieve a stable
position: How Economic stable position can the achieved how it can sustain for a long
are well discussed in the scope of Macro- Economics.

Distinctions between Micro-Economics and Macro-Economics:

The following are the differences between Micro and Macro-Economy:

Micro-Economics Macro-Economics
 Microeconomics is the branch of  Macroeconomics is the branch of
Economics that is related to the study Economics that deals with the study
of individual, household and firm’s of the behavior and performance of
behavior in decision making and the economy in total. The most
allocation of the resources. It important factors studied in
comprises markets of goods and macroeconomics involve gross
services and deals with economic domestic product (GDP),
issues. unemployment, inflation and growth
rate etc.
 Microeconomics studies the  Macroeconomics studies the whole
particular market segment of the economy, that covers several market
economy. segments.
 Microeconomics deals with various  Macroeconomics deals with various
issues like demand, supply, factor issues like national income,
pricing, product pricing, economic distribution, employment, general
welfare, production, consumption, price level, money, and more.
and more.
 The scope of micro Economics is  The scope of macro Economics is
comparatively small. comparatively wider.
 It is applied to internal issues.  It is applied to environmental and
external issues.
 It covers several issues like demand,  It covers several issues like
supply, factor pricing, product distribution, national income,
pricing, economic welfare, employment, money, general price
production, consumption, and more. level, and more.
 It is useful in regulating the prices of  It perpetuates firmness in the broad
a product alongside the prices of price level, and solves the major
factors of production (labor, land, issues of the economy like deflation,
entrepreneur, capital, and more) inflation, rising prices (reflation),
within the economy. unemployment, and poverty as a
whole
 It is based on impractical  It has been scrutinized that the
presuppositions, i.e., in misconception of composition’
microeconomics, it is presumed that incorporates, which sometimes fails
there is full employment in the to prove accurate because it is
 community, which is not at all feasible that what is true for
feasible. aggregate (comprehensive) may not
be true for individuals as well.
 Usually micro Economics is related  Usually macro Economy is related to
to the analysis of partial equilibrium. the analysis of general equilibrium or
equilibrium as a whole.
 In Micro-Economy pricing process is  In macro-Economic analysis price
discussed and in that case relative concept is rarely emphasized. But
price is highly emphasized. here price level is more important.
 Through micro analysis particular  But in macro overall Economic
picture of the Economy is reflected. picture is reflected.