Answer» - Economic analysis is done to study individual economic units as well as to study the economy as a whole.
- Hence, for the purpose of analysis, the entire study of economics is classified into:
- Microeconomics and
- Macroeconomics.
Microeconomics: - ‘Micro’ means extremely small. So, microeconomics is the study and analysis of economics at an individual, group or company level. It studies the rational behaviour of individual units of an economy. In other words, microeconomics studies and analyses at a very small level.
- Microeconomic analysis uses thre ‘Principle of Marginalism’ to analyze how individual units make decisions in an economy. Microeconomics work on certain scientific principles that show behaviour of individual units.
- For example, ‘Consumer’ is the individual unit of ‘Demand analysis’ while studying the demand at micro level, ‘Firm’ is the unit of ‘Supply analysis’ and ‘Labour’ that of ‘Labour market’.
- Other examples are price determination of a product in a market, equilibrium output level for a firm, marginal productivity and wage determination of labour as a factor of production, etc.
Macroeconomics: - Macroeconomics is the study of a national economy as a whole.
- In this sense, macroeconomics studies issues which emerge from the economy of entire nation and its impact on the nation.
- For example, determination of national income, unemployment, poverty, growth rate and demographic profile of population are topics studied under macroeconomics.
- Macroeconomic analysis has helped to develop principles for managing • resources in such a way that leads to increase in national income, reduce unemployment, poverty, inflation and so on.
- It is important to note that the behaviour of individual economic units impact the macroeconomic parameters which in turn impact the decisions of individual economic units. Thus, both microeconomics and macroeconomics are complementary to each other.
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