ECONOMICS

Economics



Economics

Study of Economics

The study of economics is divided by the modern economists into two parts viz. Micro economics and Macro economics. This division is shown in the figure / chart above. Micro economics and Macro economics, both the terms were used in 1933 by Prof. Ragnar Frisch from Oslo University of Norway.

The word micro has been derived from the Greek word `Mikros' i.e. small and the word macro has been derived from Greek word `Makros' i.e. large.

Microeconomics

Micro means small. Thus, micro economics analyses unorthodox behaviour. It studies an individual consumer, producer, price of a particular commodity, household, etc.

According to Prof. K. E. Boulding, "Micro Economics is the study of a particular firm, particular household, individual prices, wages, incomes, individual industries and particular commodities."

Micro economics is that part of economics which deals only with single unit or a single firm or an individual. The focus of micro economics is more on household and the demand-supply models are governed vastly by existing interest rates, inflationary conditions of the economy and the purchasing power of individual. When the demand for“bin of goods” increases, then its supply decreases and ultimately the price increases whereas, on the other hand if demand decreases then price also decreases finally increasing the supply of finished goods. This is the pattern of adjusting demand and supply of the economy.

Subject Matter or Scope of Microeconomics

Micro Economics is concerned with the following topics :-

1. Commodity Pricing

Prices of individual commodities are determined by market forces of demand and supply. So micro economics makes demand analysis (individual consumer behaviour) and supply analysis (individual producer behaviour) (Campbell, 2005, pp. 74).

2. Factor Pricing

Land, labour, capital and entrepreneur, all factors contribute in the production process. So they get rewards in the form of rent, wages, interest and profit respectively. Micro economics deals with determination of such rewards i.e. factor prices. So micro economics is also called as 'Price Theory' or 'Value Theory'.

3. Welfare Theory

Micro economics deals with optimum allocation of available resources and maximisation of social welfare. It provides answers for 'What to produce?', 'When to produce?', 'How to produce?' and 'For whom it is to be produced?'. In short, Micro economics guides for utilizing scarce resources of the economy to maximize public welfare.

Characteristics / Features of Microeconomics

Classical economists always insisted on micro economics because they believed that it is better to understand the concept at an individual level and then go for general (or macro) level. E.g. first understanding individual consumer behaviour and then analyzing the behaviour of the entire market.

1. Nature of Analysis

In micro economics, the behaviour of individual consumers and producers in detail is analysed. It is the study of subject matter from particular to general.

2. Method

Micro economics divides the economy into various small units and every unit is analysed in detail. It is a slicing method.

3. Scope

Micro economic analysis involves product pricing, factor pricing and theory of welfare.

4. Application

Both theoretically and practically, micro economics is useful in formulating various policies, resource allocation, public finance, international trade, ...