Answer the following:
1) Explain the features of Micro Economics.
Ans: The following are the features of microeconomics.
i. Individual units – Microeconomics is a study that basically focuses on the behaviour of individual units such as individual consumers and producers.
ii. Price theory – Microeconomics is also called the price theory, as it helps in determining the prices of both the commodities and factors of production in their respective markets.
iii. Slicing method – Microeconomic analysis adopts the slicing method. Under this method, the entire economy is divided into smaller units and then each unit is analyzed individually in detail.
iv. Partial equilibrium – Microeconomics uses a partial equilibrium approach. The equilibrium points are identified assuming “other things remain constant” (ceteris paribus). It ignores the interdependence of economic variables.
v. Microscopic approach – Just as a microscope enables us to see a larger view of smaller things, microeconomics shows a magnified view of an individual unit. It analyses small units in detail. It examines how these individual units perform economic activities and reach equilibrium.
vi. Marginalism principle – Marginal means change in the total due to an additional unit. The additional unit is known as the marginal unit. Microeconomics is based on the principle of marginalism as important economic decisions are based on the marginal unit.
vii. Analysis of market – Microeconomic studies deals in the study of different market structure namely, perfect competition, monopoly, monopolistic competition, oligopoly. It analyses how prices and output are determined in the market.
viii. Based on assumptions – Microeconomic analysis is based on certain assumptions such as laissez-faire, full employment, perfect competition, ceteris paribus, etc. Such assumptions although make the analysis simple, but may not exists in reality.
2)Explain the importance of Macro economics.
Ans: The importance of Macro economics is explained follows:
i) Functioning of an Economy: Macro economic analysis gives us an idea of the functioning of an economic system. It helps us to understand the behaviour pattern of aggregative variables in a large and complex economic system.
ii) Economic Fluctuations: Macro economics helps to analyse the causes of fluctuations in income, output, and employment and makes an attempt to control them or reduce their severity.
iii)National Income: Study of macro economics has brought forward the immense importance of the study of national income and social accounts. Without a study of national income, it is not possible to formulate correct economic policies.
iv) Economic Development: Advanced studies in macro economics help to understand the problems of developing countries such as poverty, inequalities of income and wealth, differences in the standards of living of the people etc. It suggests important steps to achieve economic development.
v) Performance of an Economy: Macro economics helps us to analyse the performance of an economy. National Income (NI) estimates are used to measure the performance of an economy over time by comparing the production of goods and services in one period with that of the other period.
vi) Study of Macro economic Variables: To understand the working of the economy, a study of macro economic variables is important. Main economic problems are related to the economic variables such as behaviour of total income, output, employment, and general price level in the economy.
vi) Level of Employment: Macro economics helps to analyse the general level of employment and output in an economy
3) The scope of Macro economics is explained follows:
i)Theory of Income and Employment – Macro economic analysis explains which factors determine the level of national income and employment and what causes fluctuations in the level of income, output, and employment. To understand how the level of employment is determined, we have to study the consumption function and investment function. Theory of Business Cycles is also a part and parcel of the Theory of Income and Employment.
ii)Theory of General Price Level and Inflation – Macro economic analysis shows how the general price level is determined and further explains what causes fluctuations in it. The study of general price level is significant on account of the problems created by inflation and deflation.
iii)Theory of Growth and Development – Macro economics consists of the theory of economic growth and development. It explains the causes of underdevelopment and poverty. It also suggests strategies for accelerating growth and development.
iv) Macro Theory of Distribution – Macro theory of distribution deals with the relative shares of rent, wages, interest, and profit in the total national income