Tuesday, 22 January 2013


Distinction between micro- economics and macro- economics
a)    Micro-economics
This is a branch of economics that deals with the study of individual economic units or a particular part of the economy. Its main concern is on the study of minor economic problems, that is those problems of individual nature.
It gives explanation on how and why the economic agents make decisions and how these decisions are influenced by the changes in prices in goods and services. Likewise it shows how firms decide on how many people to employ.
It also tries to analyze the interaction of smaller economic units to form large units like industries and markets. This is though showing how producer and consumers interact in the market by being influenced by the market forces to determine the equilibrium market price of goods and services.
Deals with the behaviour of persons, firms and resource owners i.e owners of factors of production. Generally micro-economics deals with problems that affect the individuals rather than a community as a whole.
These problems are:
1.    The problem of price determination i.e. price theory
2.    The problem of a firm i.e. production theory.
3.    The problem of the consumer i.e. consumption theory
4.    The problem of pricing the factors of production i.e distribution theory

b)    Macro-economic
This is a branch of economics that studies the global collective decisions made by individual households or producers. It considers the economy as a whole on its overall performance and the way various sectors of the economy interact.
It deals with what determines the national output, employment, total savings and spending in the economy, the price level, total consumption government expenditure, imports and exports of the economy.
Its concerns dwell on these economic problems that are of aggregate nature i.e. the problems concern the community as a whole rather than individuals. Generally it deals with economic problems with a broader perspective than micro-economics. These problems are.
i)                National income
ii)               Money and banking
iii)             Inflation
iv)             Population
v)               Unemployment
vi)             International trade
vii)           Public finance
viii)          Economic growth and development
ix)             Development planning etc.
Generally the following distinctions can be given to precisely analyze the differences between micro-economics and macro-economics.
1.    Micro-economics deals with the behavior of individual units while macro-economic deals with aggregate economics variables.
2.    Micro-economics deals with decisions and policies formulated by individual units in the economy while macro-economic deals with formulation of useful economic policies for the nation.
3.    Micro-economics seeks to solve economic problems of the individual units while macro-economic finds a solution to urgent national economic problems e.g. Level of output, level of national income etc.
4.    Micro-economics provides an individual’s performance in his or her economic activities while macro-economic gives a bird’s eye view of the performance (progression) of the whole economy

They are:
1.    Positive economics
2.    Normative economics
Positive economics
This approach is concerned with preposition that can be tested with reference to empirical evidence. The preposition emphasize on facts and knowledge about the people’s behavior, the universe in which they live.
This approach limits itself to statements that can be verified by reference to facts. For example,
·       What is the rate of inflation
·       If the price of a commodity rises its demand falls.
·       How higher levels of unemployment do affects inflation?
·       How will a cooking fat tax affects its consumption?
Out of these examples, it can be concluded that this approach to economics is no objective and scientific since it is evidence-based.
To illustrate this approach, the following procedures are followed:
i)      First, the concepts are defined in such a way that they can be measured in order to test the theory against facts
ii)     Secondly, the hypotheses are formulated.
iii)   And then, the predictions are made based on the hypotheses.
iv)   Lastly, the hypotheses are tested to make sure that the predictions are supported by facts.

Normative economics
This approach is based on statements or prepositions that are more of opinions than facts. The statements are based on value judgments of what ought to be. For example,
 A country’s income should be equitably distributed. This approach appreciates that many economic decisions involve subjective judgments that is they cannot be solely made by an objective appraisal of the facts but depends on personal use to some extent in interpreting the facts (ethics and value judgment)
The judgments can be brought up for debate but no conclusion can be reached by either sciences or appeal of facts. For example:
          Should taxation soak the rich to help the poor?
           Should defense expenditure rise to 3%, to 5% or to 10% per year?
   All these judgments are what ought to be and are settled on by political choice 

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