Applied Micro and Macro Economics for

policy decision making

Presented By: Zil e Husnain

Rizwan ul Haq
Presented to: Dr. Shaista Khalid

University of
Sargodha
Outline

 Economics
 Microeconomics
 Macroeconomics
 Difference between Microeconomics & Macroeconomics
 Principles of Microeconomics
 Principles of Macroeconomics
 Role of economics in policy decision making
 Role of economics in educational policy decision making
 Conclusion
Economics

 Economic is a study about how individuals, businesses and governments

make decision on allocating resources to satisfy their needs.
 For maximum output
 Why economics?
International level: (War, Global Warming)
National Level: (Budgets, Laws) Macro
Daily life: (Day to day things) economics
Micro
economics
Microeconomics
 the study of individual, household and firm’s behavior in decision
making and allocation of the resources.
 Examples:
Household / individual’s budgets Individua
Individual's work (part time, full time, no work) l

How much to save for future

A firm’s production and selling of products Firm
When to hire, expand, or downsize
Market for labor
Market
Why market fail
Macroeconomics

 deals with the study of the behavior and performance of the economy as
a whole .
gross domestic product (GDP),
Unemployment,
Fiscal policy
budgets
Nation’s Standard of living
Levels of import and export
Inflation and growth rate etc.
Difference b/w micro & macro economics
1. Meaning

Microeconomics

• the study of individual, household and firm’s

behavior in decision making and allocation of the
resources.
Macroeconomics

• Macroeconomics is the branch of Economics that

deals with the study of the behavior and
performance of the economy as a whole..
2. Area of study

Microeconomics

• Microeconomics studies the particular market

segment of the economy

Macroeconomics

• Macroeconomics studies the whole economy,

that covers several market segments
3. Deals with

Microeconomics

• Microeconomics deals with various issues like

demand, supply, pricing, economic welfare,
production, consumption, and more.

Macroeconomics

• Macroeconomics deals with various issues like

national income, distribution, employment, general
price level, money, and more.
4. Business application

Microeconomics

• It is applied to internal issues.

Macroeconomics

• It is applied to environmental and

external issues
5. Scope

Microeconomics

• It covers several issues like demand, supply, pricing,

economic welfare, production, consumption, and more

Macroeconomics

• It covers several issues like distribution, national

income, employment, money, general price level, and
more.
6. Significance

Microeconomics

• It is useful in regulating the prices of a product

alongside the prices of factors of production (labour,
land, entrepreneur, capital, and more) within the
economy.
Macroeconomics

• It perpetuates firmness in the broad price level, and

solves the major issues of the economy like inflation,
unemployment, and poverty as a whole.
7. Limitation

Microeconomics

• It is based on impractical presuppositions, i.e., in

microeconomics, it is presumed that there is full
employment in the community, which is not at all
feasible.

Macroeconomics

• what is true for aggregate (comprehensive) may not

be true for individuals as well.
Microeconomic principles

 Opportunity Cost
 Demand & Supply
 Market Failure
 Externalities
 Public goods
Basic Principles of microeconomics with an
emphasis on applications to solve public problems
 Principle #1
Opportunity Cost:

• Every choice has a cost and the opportunity cost

is what you give up to get something else.
• Understanding opportunity costs can guide better
use of public funds.
 Principle #2
Supply and Demand:

The interaction between supply ( how much

producers are willing to make) and demand (how
much consumers want) determines prices and
quantities of goods in a market.
Understanding supply and demand can help
governments set fair prices for goods and services
 Principle #3
Market Failure:

Market failure occurs when it fails to allocate

resources efficiently or fairly.
Identifying situations where markets fail to allocate
resources efficiently and government interventions
is needed.
 Principle #4
Externalities:

Externalities are costs or benefits that affect third

parties who are not directly involved in a
transaction.
Recognizing the impact of economic activities on
the environment and public health.
 Principle #5
Public goods:

Public goods are special types of goods or services

that everyone can use.
Understanding the role of government in providing
essential services like education, defense, and
infrastructure.
Macroeconomic principles

 GDP
 Unemployment
 Inflation
GDP

 how many goods or services a nation produce

GDP of Pakistan
Unemployment

 The unemployment rate is the percentage of the labor force that

is unemployed
 Inflation
 Inflation is a measure of the rate of rising prices of goods and services in
an economy.
 Inflation can occur when prices rise due to increases in production costs,
such as raw materials and wages.
 A surge in demand for products and services can cause inflation as
consumers are willing to pay more for the product.
 Some companies reap the rewards of inflation if they can charge more
for their products as a result of the high demand for their goods.
Role of economics in policy decision
making
 Formulate,
 Adopt,
 Implement,
 Evaluate, or
 Change policies.
These decisions may occur at any level.
 Sustained inclusive and sustainable economic growth, full and
productive employment and decent work for all’
 monitor able targets
Steps of the Policy Making Cycle

 Agenda Setting
Problem or challenge is identified, solutions are put forward
 Policy Formation
narrow the range of possible policy choices by excluding infeasible options
 Decision Making
decide on a particular course of action
 Policy Implementation
put the chosen public policy option into effect
 Policy Evaluation
monitor the impact of the policy and determine if it is achieving the intended
goal
Role of economics in Educational
policies
 In facing up to the challenges from the economic downturn in the Asia‐
Spacific region since 1997, the rapid international rise of knowledge‐
driven economies and the drastic impacts of information technology and
globalization, numerous educational reforms have been initiated in the
region and other parts of the world (Cheng, 1999; Cheng and Townsend,
2000).
 Some people are concerned about whether the existing education can
meet the needs of new economic developments in this millennium and
how education should be changed to prepare future generations for the
knowledge‐based economy . Others are concerned about how the
education system should be resourced and funded in a more efficient
and effective way in order to meet diverse growing demands for
education.
Conti…

 the expenditure on education has continued to rise as a result of the

rapid expansion of the education system at all levels. The fact remains
that the needs and demands in the education sector are limitless but the
funds to satisfy the mare limited and therefore, the imperative of in
order to prioritize these needs during policy making process we always
linked with our economical condition. Thus, the identification of
educational policy goals, allocation of costs and their executioner
implementation, hold the key to achieving these goals. This requires
planning which is crucial for educational policy to ensure that resources
are used effectively to improve students’ achievement. Budget is the
product of a collaborative process requiring a clear understanding of the
school’s goals for improving students’ outcomes and its plans for
achieving them.
 The economic benefits are not limited to individuals. Investing in education gives
governments positive public returns at every level of education. Educated
citizens earn more, pay higher taxes over a lifetime, and cost less for their
governments in terms of social entitlements and welfare. Not only the economic
returns are greater at the tertiary level, but growing evidence also points to the
importance of high quality early childhood education and care given its long-term
social and economic benefits, such as supporting learning in later grades,
increasing equity and social mobility, and reducing poverty. Furthermore, what
people know is important, but what they do with what they know is also critical in
competitive economies: skills acquisition and use are key policy discussions and
since evolving economies often require retraining and skills upgrading, more
countries are taking a “life cycle” approach to education starting in early childhood
and continuing until after formal schooling in the form of lifelong learning. In this
context, career guidance has an increasingly important role to play in helping
workers and employers find the best match for skills and jobs available.
Conclusion

 Economic development is a key concern in ongoing education reforms in

different parts of the world. From an economic perspective, education
policy and reform need to deal with the issues of the internal and external
economic effectiveness of the education system. The external economic
effectiveness issue concerns whether the existing education policy can
meet the needs of new economic development in the new millennium and
how education should be changed to prepare the new generations for the
knowledge‐driven and technology‐intensive economy. The internal
economic effectiveness issue focuses on how the education system
should be resourced and funded in a more efficient and effective way to
meet diverse growing demands for education. In addition to economic
effectiveness issues, education equity relating to equal opportunity of
education and responsibility for education cost is also a crucial concern in
education policy.
References

 Principles of microeconomics 2e by
STEVEN A. GREENLAW, UNIVERSITY OF MARY WASHINGTON
DAVID SHAPIRO, PENNSYLVANIA STATE UNIVERSITY
 Macroeconomics by
Matthias Doepke, University of Chicago
Andreas Lehnert, Board of Governors of the Federal Reserve System
AndrewW. Sellgren, George Mason University
 Official website of Point Park University Pittsburgh, USA.