Answer in detail:
1) Explain the Importance of micro economics?
Ans: Importance of micro economics are as follows.
Micro economics is a branch of economics that is concerned with the analysis of the behaviour of an individual economic unit or variable. Microeconomics plays a vital role in the study of modern economic theory. It is important in the following ways as described below:
1) Price Determination : Micro economics explains how the prices of different
products and various factors of production are determined.
2) Free Market Economy : Micro economics helps in understanding the working of a free market economy. A free market economy is that economy where the economic decisions regarding production of goods, such as ‘What to produce?, How much to produce?, How to produce? etc.’ are taken at individual levels. There is no intervention by the Government or any other agency.
3) Foreign Trade : Micro economics helps in explaining various aspects of foreign trade like effects of tariff on a particular commodity, determination of currency exchange rates of any two countries, gains from international trade to a particular country etc.
4) Economic Model Building : Micro economics helps in understanding various complex economic situations with the help of economic models. It has made a valuable contribution to economics by developing various terms, concepts, terminologies, tools of economic analysis etc. Economic models are built using various economic variables.
5) Business Decisions : Micro economic theories are helpful to businessmen for taking crucial business decisions. These decisions are related to the determination of cost of production, determination of prices of goods, maximization of output and profit, etc.
6) Useful to Government : It is useful to government in framing economic policies such as taxation policy, public expenditure policy, price policy etc. These policies help the government to attain its goals of efficient allocation of resources and promoting economic welfare of the society.
7) Basis of Welfare Economics : Micro economics explains how best results can be obtained through optimum utilization of resources and its best allocation. It also studies how taxes affect social welfare.
2) Explain the concept of Macro economics and its features (OR) What are the features of Macro Economics?
Meaning: -The term Macro is derived from Greek word “Makros” which means large. It is the branch of economics, which studies the behaviour of all economics units combined together. Macroeconomics is a study of aggregates. It is the study of the economic system as a whole. Therefore, it is also called Aggregate Economics.
Definition: – “Macroeconomics deals not with individual quantities as such, but with aggregates of these quantities; not with individual incomes but with the national incomes; not with individual prices but with the price level; not with individual outputs but with the national output’.
Features of Macro-Economics are as follows:-
1) Study of Aggregates : Macro economics deals with the study of economy as a whole. It is concerned with the aggregate concepts such as national income, national output, national employment, general price level, business cycles etc.
2) Income Theory : Macro economics studies the concept of national income, its different elements, methods of measurement and social accounting. Macro economics deals with aggregate demand and aggregate supply. It explains the causes of fluctuations in the national income that lead to business cycles i.e. inflation and deflation.
3) General Equilibrium Analysis : Macro economics deals with the behaviour of large aggregates and their functional relationship. General Equilibrium deals with the behaviour of demand, supply and prices in the whole economy.
4) Interdependence : Macro analysis takes into account interdependence between aggregate economic variables, such as income, output, employment, investments, price level etc. For example, changes in the level of investment will finally result into changes in the levels of income, levels of output, employment and eventually the level of economic growth.
5) Lumping Method : Lumping method is the study of the whole economy rather than its part. According to Prof. Boulding, “Forest is an aggregation of trees but it does not reveal the properties of an individual tree.” This reveals the difference between micro economics and macro economics.
6) Growth Models : Macro economics studies various factors that contribute to economic growth and development. It is useful in developing growth models. These growth models are used for studying economic development. For example, Mahalanobis growth model emphasized on basic heavy industries.
7) General Price Level : Determination and changes in general price level are studied in macroeconomics. General price level is the average of all prices of goods and services currently being produced in the economy.
8) Policy-oriented : According to Keynes, macro economics is a policy oriented science. It suggests suitable economic policies to promote economic growth, generate employment, control of inflation, and depression etc.