L7

Micro and Macro Economics.

Micro Economics talks about the actions of an individual unit, i.e. an individual, firm, household, market, industry, etc. On the other hand, the Macro Economics studies the economy as a whole, i.e. it assesses not a single unit but the combination of all i.e. firms, households, nation, industries, market, etc.

BASIS FOR COMPARISON	MICROECONOMICS	MACROECONOMICS
Meaning	The branch of economics that studies the behavior of an individual consumer, firm, family is known as Microeconomics.	The branch of economics that studies the behavior of the whole economy, (both national and international) is known as Macroeconomics.
Deals with	Individual economic variables	Aggregate economic variables
Business Application	Applied to operational or internal issues	Environment and external issues
Tools	Demand and Supply	Aggregate Demand and Aggregate Supply
Assumption	It assumes that all macro-economic variables are constant.	It assumes that all micro-economic variables are constant.
Concerned with	Theory of Product Pricing, Theory of Factor Pricing, Theory of Economic Welfare.	Theory of National Income, Aggregate Consumption, Theory of General Price Level, Economic Growth.
Scope	Covers various issues like demand, supply, product pricing, factor pricing, production, consumption, economic welfare, etc.	Covers various issues like, national income, general price level, distribution, employment, money etc.
Importance	Helpful in determining the prices of a product along with the prices of factors of production (land, labor, capital, entrepreneur etc.) within the economy.	Maintains stability in the general price level and resolves the major problems of the economy like inflation, deflation, reflation, unemployment and poverty as a whole.
Limitations	It is based on unrealistic assumptions, i.e. In microeconomics it is assumed that there is a full employment in the society which is not at all possible.	It has been analyzed that ‘Fallacy of Composition’ involves, which sometimes doesn’t proves true because it is possible that what is true for aggregate may not be true for individuals too.