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
APPROACHES INVOLVED IN THE STUDY OF
ECONOMICS
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
