• MICRO ECONOMICS
• MACROECONOMICS
Microeconomics
• Micro has been derived from GREEK word
''MIKROS''which mean small .
• It is a study of the individual units of
economic system .
• In other words a small part of economy &
not the whole economy .
• Prof. Mac cannel, ''micro economics is a
study of the specific economic units and a
detailed consideration of the behavior of
these individual units''.
• Prof.Boulding, ''micro economics seeks to
explain the working of individuals, firms,
households, individual prices, wages,
particular industries''.
• It deals with determination of product
prices and factor of prices.
• In short , it is concerned with the
determination of prices like theory of
production, theory of rent, wages. Interest,
profit & economic welfare.
• It also known as PRICE THEORY.
Merits
• A worm's eye view of a small specific unit.
• Formulating economic policies and scarce
resources of the country.
• Achieve maximum output with minimum
costs.
• It is helpful for macro economic studies.
Limitations
• It does not give the correct pictures of the
working of the economy.
• It does not provide solution to certain
economic problems.
• The area of study covered by it is
limited.
• It cannot be abruptly applied to the study
of macroeconomic problems.
Macroeconomics
• Macro is been derived from the Greek
word ''MAKROS''which means LARGE.
• Macro economic is the study of large part
of the economy, i.e., The whole economy.
• The study of economic behaviour of the
economy as a whole & not the individual
economic units of the economy.
• Prof. Boulding, '' Marco economics deals
not only with individual quantities but with
the aggregates of these quantities, not with
the individual incomes, but with national
income, not with individual prices, but with
prices level, not with individual outputs but
with the national output''.
• It deals with total consumption, total
savings, total investment, total output,
total or national income, inflation &
deflation economic growth, etc.
• In other words it is concerned with the
analysis of income & employment in the
economy as a whole.
• Theory of income & employment.
Merits
• A bird's eye-view of the entire economy.
• Macro economic is more useful in solution
to economy problems.
• It is quite helpful in formulation of GOVT.
Economic policies.
• Study of macro economic is useful to
micro economic studies.
Limitations
• The study of individual units becomes
more useful than study of aggregates.
• Too Much Generalization: The conclusion
derived from the aggregation of the data,
is generally taken to be true for all the
individuals.
• It studies the economy in general or in
detail.
Conclusion
• It is true that macroeconomic is more realistic and
more useful than microeconomic. But this is not
that microeconomic should be given up. In fact both
cannot adequately explain working of economic
system.
• Both the approaches are inter-related inter
dependent & complementary to each other.
• Both are necessary for a perfect study of economics.
Positive and Normative
statements
Normative statements
• Normative statements are based on
value judgements which cannot be
proven or tested as true or false.
Positive statements
• Positive statements are statements that
can be tested against real data. Positive
statements are more objective and
scientific.
Quiz
• Positive or normative?
• Cut-price alcohol has increased the demand
for alcohol among teenagers.
• Positive
• Pakistan cricket team is better than
Bangladesh cricket team
• Positive
• Unemployment is more harmful than inflation.
• Normative
• Resources are best allocated by allowing the
market mechanism to work freely.
• Normative
• If the government raises the tax on beer, this
will lead to a fall in profits of the brewers.
• Positive
• Ali is better at economics than Kamran.
• Positive
• A car scrappage scheme will lead to fall in the
price of second hand cars.
• Positive
• A rise in average temperatures will increase
the demand for sun screen products.
• Positive
• The government should enforce minimum
prices for beers and lagers sold in
supermarkets and off-licences in a bid to
control alcohol consumption.
• Normative
Comparison Chart
BASIS FOR COMPARISON POSITIVE ECONOMICS NORMATIVE ECONOMICS
Meaning A branch of economics A branch of economics
based on data and facts is based on values, opinions
positive economics. and judgement is
normative economics.
Nature Descriptive Prescriptive
What it does? Analyses cause and effect Passes value judgement.
relationship.
Perspective Objective Subjective
Study of What actually is What ought to be
Testing Statements can be tested Statements cannot be
using scientific methods. tested.
Economic issues It clearly describes It provides solution for the
economic issue. economic issue, based on
value.
