The study of economics is divided into two parts.
Micro economics: The word micro means a millionth part. Microeconomics is the study of the small part or component of the whole economy that we are analyzing. For example we may be studying an individual firm or in any particular industry. In Microeconomics we study of the price of the particular product or particular factor of the production.
The Micro Economics theory studies the behavior of individual decision-making units such as consumers, recourse owners and business firms.
Importance of Micro & Macro Economics
It has both theoretical and practical importance, from the theoretical point of view, it explains the functioning of a free enterprise economy. It tells us how million of consumers and producers in an economy take decision about the allocation of productive recourses and million of goods and services. As for the practical importance Micro economics in the formulation of economics policies calculate to promote efficiency in production and welfare of the masses.
The role of Micro economics is both positive and normative; it not only tells how economy operates but also how it should operate in to improve general welfare.
Macro economics is the study of behavior of the economy as a whole. It examines the overall level of nations out put, employment, price and foreign trade.
Macroeconomics is concerned with aggregate and average of entire economy.
e.g. In Macro economics we study about forest not about tree.
In other words in macro economics study how these aggregates and averages of economy as whole are determined and what causes fluctuation in them. For making of useful economic policies for the nation macroeconomics is necessary.
We can summarize the objects of macroeconomics as follows.
1. A high and rising level of real output.
2. High employment and low unemployment, providing good jobs at high pay to those
who want to work.
3. A stable or gently rising price level, with process and wages determined by free
4. Foreign economic relations marked by stable foreign exchange rate and exports more
or less balancing imports.
Macro economics involves choice among alternative central objectives.
A nation can’t high consumption and rapid growth. To lower a high inflation rate requires either a period of high unemployment and low output, or interfering with free markets through wage-price policies. These difficult choices are among those that must be faced by macroeconomic policy makes in any nation.