1. What is economics?

Economics is the study of how societies use scarce resources to produce valuable goods
and services and distribute them among different individuals.
2. Why study economics?
i.
Many study economics to help them get a good job.
ii.
Some people feel they should understand more deeply what lies behind reports on
inflation and unemployment.
iii.
people want to understand what kinds of policies might slow global warming or what
it means to say an iPod is made in China.
iv. Some people wants to know more about international trade and its regulation and
impact.
3. What is Micro economics??
Microeconomics is the part of economics concerned with individual units such as
a person, a household, a firm, or an industry. At this level of analysis, the economist
observes the details of an economic unit, or very small segment of the economy, under a
figurative microscope. In microeconomics we look at decision making by individual
customers, workers, households, and business firms. We measure the price of a specific
product, the number of workers employed by a single firm, the revenue or income of a
particular firm or household, or the expenditures of a specific firm, government entity, or
family. In microeconomics, we examine the sand, rock, and shells, not the beach.
4. Scopes of Microeconomics??
i.
Theory of Demand
The goods are produced due to the consumers demand. Hence, in
microeconomics, at first, the theory of demand or the theory of consumer
behavior is studied. This includes the meaning, types, law, and determinants of
demand, elasticity of demand, law of diminishing utility, law of equi-marginal
utility, indifference curve, indifference curve, revealed preference theory and so
on. Besides, the practical importance of these theories is also included in
microeconomics.
ii.
Theory of Production and costs
One of the important branches of economics is production and cost theory. The
theory of production consists of the factors of production, concepts of different
types of product and the theories like law of variable proportions, law of returns
to scale, least cost combinations of inputs and so on. Similarly, the theory of costs
consists of the different concepts of cost, nature of short run and long run costs
etc. It also includes linear programming, a mathematical technique of cost
minimization or output maximization.
iii.
Theory of Product pricing
Since microeconomics studies the determination of price of goods and services, it
is also known as price theory. The relative price of different goods is determined
under different market situations. The market situations may be perfect
competition, monopoly, monopolistic competition, oligopoly and so on.
Microeconomics studies the process of pricing of goods in these markets. The

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theory of factor pricing includes the study of the costs, revenue, profit, position of
loss and the behavior regarding profit maximization or cost minimization. Hence,
the theory of product pricing is also known as the theory of the firm.
Theory of Factor pricing
The theory of factor pricing is another important branch of microeconomics. The
theory of factor pricing is also called the theory of distribution. The goods are
produced with the joint efforts of land, labor, capital and entrepreneur. These are
called factors of production. The rewards of these factors are called rent, wages,
interest and profit respectively. In factor pricing the determination of rents wages,
interest and profit is studied. There are different traditional and modern theories
regarding the determination of the rewards of factors of production.
Theory of Economic welfare
The theory of economic welfare is also known as welfare economics. Welfare
economics is an important branch of microeconomics. The normative price theory
is called welfare economics. The subject matter of welfare economics includes the
potential measures of maintaining economic prosperity of men as consumers and
producers and to improve those prosperity or welfare.

5. What is Macroeconomics???
Macroeconomics examines either the economy as a whole or its basic
subdivisions or aggregates, such as the government, household, and business sectors. An
aggregate is a collection of specific economic units treated as if they were one unit.
Therefore, we might lump together the millions of consumers in the U.S. economy and
treat them as if they were one huge unit called consumers.
In using aggregates, macroeconomics seeks to obtain an overview, or general
outline, of the structure of the economy and the relationships of its major aggregates.
Macroeconomics speaks of such economic measures as total output, total employment,
total income, aggregate expenditures, and the general level of prices in analyzing various
economic problems. No or very little attention is given to specific units making up the
various aggregates.
6. Scopes of Macroeconomics???
i.
Theory of National Income: Macroeconomics studies the concept of national income, its different elements,
methods of its measurement and social accounting.
ii.

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Theory of Employment: It studies the problems of employment and unemployment. There are different
factors which determine employment. They are like effective demand, aggregate
demand, aggregate supply, total consumption, total savings and total investment etc.
Marco Theory of distribution: There are macro-economic theories of distribution. These theories try to explain how
the national output is distributed among the factors of production.
Economic development: -

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UDCs are blessed with mass poverty and low per capita income curve for economic
development. Economic development is a long run process. In it, we analyze the
problems and theories of development.
Theory of International Trade: It also studies principles determine trade among different countries. Tariffs protection
and free-trade polices fall under foreign trade.
Theory of Money: Changes in demand and supply of money effect level of employment. Therefore,
under macroeconomics functions of money and theories relating to money are
studied.
Theory of General Price Level: A continuous rise in the price level is called inflation. It distorts production. It
increases inequalities in the distribution of income and wealth. The common man is
injured by inflation. Deflation is the opposite of inflation. The general price level falls
continuously. Output and employment levels fall. Macroeconomics provides
expiation provides expiations for the occurrence of inflation and deflation.

7. Distinction between micro and macroeconomics???

BASIS FOR
COMPARISON

MICROECONOMICS

MACROECONOMICS

Meaning

The branch of economics that

studies the behavior of an
individual consumer, firm,
family is known as
Microeconomics.
Individual economic variables
Applied to operational or
internal issues
Covers various issues like
demand, supply, product
pricing, factor pricing,
production, consumption,
economic welfare, etc.
Helpful in determining the
prices of a product along with
the prices of factors of
production (land, labor, capital,
entrepreneur etc.) within the
economy.

The branch of economics that

studies the behavior of the
whole economy, (both national
and international) is known as
Macroeconomics.
Aggregate economic variables
Environment and external
issues
Covers various issues like,
national income, general price
level, distribution, employment,
money etc.

Deals with
Business
Application
Scope

Importance

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

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.
It has been analyzed that
'Fallacy of Composition'
involves, which sometimes
doesn't proves true because it
is possible that what is true for

possible.

aggregate may not be true for

individuals too.

8. Positive and normative economics.

Positive economics focuses on facts and cause-and-effect relationships. It includes
description, theory development, and theory testing (theoretical economics). Positive
economics avoids value judgments, tries to establish scientific statements about economic
behavior, and deals with what the economy is actually like. Such scientific-based analysis
is critical to good policy analysis.
On the other hand, normative economics incorporates value judgments about what the
economy should be like or what particular policy actions should be recommended to
achieve a desirable goal (policy economics). Normative economics looks at the
desirability of certain aspects of the economy. It underlies expressions of support for
particular economic policies.
9.