Hanna Jane B.

Zaragoza
BSBA-Marketing Management 2

1. Distinction between Microeconomics and Microeconomics.

Microeconomics vs. Macroeconomics: An Overview
Economics is divided into two different categories: microeconomics and macroeconomics. Microeconomics is the
study of individuals and business decisions, while macroeconomics looks at the decisions of countries and
governments.

While these two branches of economics appear to be different, they are actually interdependent and complement one
another since there are many overlapping issues between the two fields.

Microeconomics
Microeconomics is the study of decisions made by people and businesses regarding the allocation of resources and
prices of goods and services. It also takes into account taxes and regulations created by governments.

Microeconomics focuses on supply and demand and other forces that determine the price levels in the economy. It
takes what is referred to as a bottom-upapproach to analyzing the economy. In other words, microeconomics tries to
understand human choices and resource allocation.

Having said that, microeconomics does not try to answer or explain what forces should take place in a market.
Rather, it tries to explain what happens when there are changes in certain conditions.

For example, microeconomics examines how a company could maximize its production and capacity so that it could
lower prices and better compete in its industry. A lot of microeconomic information can be gleaned from the financial
statements.

Microeconomics involves several key principles including (but not limited to):

 Demand, Supply, and Equilibrium: Prices are determined by the theory of supply and demand. Under this
theory, suppliers offer the same price demanded by consumers in a perfectly competitive market. This
creates economic equilibrium.
 Production Theory: This is the study of production.
 Costs of Production: According to this theory, the price of goods or services is determined by the cost of
the resources used during production.
 Labor Economics: This principle looks at workers and employers, and tries to understand the pattern of
wages, employment, and income.

The rules in microeconomics flow from a set of compatible laws and theorems, rather than beginning with empirical
study.

Microeconomics Vs. Macroeconomics

Macroeconomics
Macroeconomics, on the other hand, studies the behavior of a country and how its policies affect the economy as a
whole. It analyzes entire industries and economies, rather than individuals or specific companies, which is why it's a
 top-down approach. It tries to answer questions like "What should the rate of inflation be?" or "What stimulates
economic growth?"

Macroeconomics examines economy-wide phenomena such as gross domestic product (GDP) and how it is affected
by changes in unemployment, national income, rate of growth, and price levels.
Macroeconomics analyzes how an increase or decrease in net exports affects a nation's capital account, or how
GDP would be affected by the unemployment rate.

Macroeconomics focuses on aggregates and econometric correlations, which is why it is used by governments and
their agencies to construct economic and fiscal policy. Investors of mutual funds or interest rate-sensitive securities
should keep an eye on monetary and fiscal policy. Outside of a few meaningful and measurable impacts,
macroeconomics doesn't offer much for specific investments.

John Maynard Keynes is often credited as the founder of macroeconomics, as he initiated the use of monetary
aggregates to study broad phenomena. Some economists reject his theory, while many of those who use it disagree
on how to interpret it.

Microeconomics vs. macroeconomics

The difference between micro and macro economics is simple. Microeconomics is the study of economics at an
individual, group or company level. Macroeconomics, on the other hand, is the study of a national economy as a
whole.

Microeconomics focuses on issues that affect individuals and companies. This could mean studying the supply
and demand for a specific product, the production that an individual or business is capable of, or the effects of
regulations on a business.

Macroeconomics focuses on issues that affect the economy as a whole. Some of the most common focuses of
macroeconomics include unemployment rates, the gross domestic product of an economy, and the effects of
exports and imports.

Does this make sense? While both fields of economics often use the same principles and formulas to solve
problems, microeconomics is the study of economics at a far smaller scale, while macroeconomics is the study of
large-scale economic issues.

 Microeconomics is the study of particular markets, and segments of the economy. It looks at issues such as
consumer behaviour, individual labour markets, and the theory of firms.
 Macro economics is the study of the whole economy. It looks at ‘aggregate’ variables, such as aggregate demand,
national output and inflation.

Micro economics is concerned with:

 Supply and demand in individual markets

 Individual consumer behaviour. e.g. Consumer choice theory
 Individual labour markets – e.g. demand for labour, wage determination
 Externalities arising from production and consumption. e.g. Externalities
 Macro economics is concerned with

 Monetary / fiscal policy. e.g. what effect does interest rates have on the whole economy?
 Reasons for inflation and unemployment.
 Economic growth
 International trade and globalisation
 Reasons for differences in living standards and economic growth between countries.
 Government borrowing

Sources:

https://www.investopedia.com/ask/answers/difference-between-microeconomics-and-macroeconomics/

https://blog.udemy.com/difference-between-micro-and-macro-economics/?fbclid=IwAR35V6KDiHUozYk_6Ox4A-
ilInP_gmlO_V7MCkosw2vZFsRRKTJDiMIjygg
https://www.economicshelp.org/blog/6796/economics/difference-between-microeconomics-and-
macroeconomics/?fbclid=IwAR29zdSnyDqd9bOByED42tVMkjLDEAvzhbp4mDGl_-K9bBHNNjlZUIQNh9E

2. Distinction between Positive and Normative Economics.

Economics is a science as well as art. But which type of science is a big question here, i.e. positive or
normative? Positive economics is related to the analysis which is limited to cause and effect relationship. On the
other hand, normative economics aims at examining real economic events from the moral and ethical point of view.
It is used to judge whether the economic events are desirable or not.

While Positive economics is based on facts about the economy. Normative economics is value judgment based. Most
of the people think that the statements which are commonly accepted are a fact but in reality, they are valued. By,
understanding the difference between positive and normative economics, you will learn about how the economy
operates and to which extent the policy makers are taking correct decisions.

Comparison Chart

BASIS FOR
POSITIVE ECONOMICS NORMATIVE ECONOMICS
COMPARISON

Meaning A branch of economics based on data A branch of economics based on values,

and facts is positive economics. opinions and judgement is normative economics.

Nature Descriptive Prescriptive

What it does? Analyses cause and effect relationship. Passes value judgement.
 BASIS FOR
POSITIVE ECONOMICS NORMATIVE ECONOMICS
COMPARISON

Perspective Objective Subjective

Study of What actually is What ought to be

Testing Statements can be tested using Statements cannot be tested.

scientific methods.

Economic issues It clearly describes economic issue. It provides solution for the economic issue,
based on value.

Definition of Positive Economics

Positive Economics is a branch of economics that has an objective approach, based on facts. It analyses and
explains the casual relationship between variables. It explains people about how the economy of the country
operates. Positive economics is alternatively known as pure economics or descriptive economics.

When the scientific methods are applied to economic phenomena and scarcity related issues, it is positive
economics. Statements based on positive economics considers what’s actually occurring in the economy. It helps the
policy makers to decide whether the proposed action, will be able to fulfill our objectives or not. In this way, they
accept or reject the statements.

Definition of Normative Economics

The economics that uses value judgments, opinions, beliefs is called normative economics. This branch of
economics considers values and results in statements that state, ‘what should be the things’. It incorporates
subjective analyses and focuses on theoretical situations.

Normative Economics suggests how the economy ought to operate. It is also known as policy economics, as it takes
into account individual opinions and preferences. Hence, the statements can neither be proven right nor wrong.

Key Differences Between Positive and Normative Economics

The important differences between positive and normative economics are explained in the points given below:

1. Positive Economics refers to a science which is based on data and facts. Normative economics is described
as a science based on opinions, values, and judgment.
2. Positive economics is descriptive, but normative economics is prescriptive.
 3. Positive economics explains cause and effect relationship between variables. On the other hand, normative
economics pass value judgments.
4. The perspective of positive economics is objective while normative economics have a subjective
perspective.
5. Positive economics explains ‘what is’ whereas normative economics explains ‘what should be’.
6. The statements of positive economics can be scientifically tested, proved or disproved, which cannot be
done with statements of normative economics.
7. Positive economics clearly define economic issues. Unlike normative economics, in which the remedies are
provided for the economic issues, on the basis of value judgment.

Conclusion

After the above discussion, we can say that these two branches are not contradictory but complementary to each
other, and they should go hand in hand. While laying down laws and theories, economics should be treated as a
positive science, but at the time of practical application, economics should be treated as a normative science.

Source: https://keydifferences.com/difference-between-positive-and-normative-
economics.html?fbclid=IwAR3wWy7hgFEUcjjiw335E22u98AhgtpiJBEuziZWphex_f1Jo2JMhwyO_h0

3. Distinction between Production Possibility Frontier and Production Possibility Curve.

The Production Possibility Frontier (PPF) is an economics term referring to a graphical representation of the possible
combinations or rates that two different commodities will be produced at given the same amount of resources,
manpower, and other factors of production available within a certain period of time. Production Possibility Curve (PPC)
is simply another term used to refer to this. Other terms used in the same way are Production Possibility Boundary and
transformation curve.

A PPF/PPC model would theoretically show the comparison of one commodity’s production in comparison to the level
of another and what effect the decrease or increase of one commodity’s production will have on the other. Note that
this is not limited to a physical commodity or goods as the PPF/PPC can also be used to represent the productive
efficiency of services. The desired result is to maximize the potential output level of one of the commodities in relation
to that of the other. A PPF/PPC representation can take the shape of a concave or a straight line, (aka “linear”),
depending on the elements and factors being taken into the equation. Many economic concepts and problems can be
represented using a PPF/PPC, such as productive efficiency, allocation, opportunity cost, limited or scarce resources,
and the like. Even factors of a larger scope in the economy such as economic growth or stagnation, the effects
of supply and demand, dwindling labor force, and so on can be represented with a PPF/PPC if provided with all the
necessary data.

The Production Possibility Frontier/Production Possibility Curve, however, is often criticized for being oversimplified
and unrealistic. In general, using a PPF assumes certain constants: that wants of people are unlimited; that the
resources involved are limited but have alternatives. Only two commodities are being compared, which does not factor
the effect of other commodities in the overall economy, (which, in reality, any commodity would have an effect, however
small); that the economy is constant and stable; it does not take into consideration any advancements in the economy
(which, realistically, would have a significant impact on the production, particularly if the period of time used is in years);
factors of production (i.e., land, labor, and capital goods) are constant and always available; and, finally, that the entire
economic environment is unchanging (which, as we all know, is unrealistic as it can shift at any time). Despite these
criticisms, PPF/PPC models are commonly used for getting rough estimates on what commodities are needed, how
much should be produced, what needs to be adjusted with the allocation of resources, potential economic growth, and
such.

The great thing about the PPF/PPC concept is that it is very versatile in application. It can be used in the
macroeconomic level, as mentioned before, but it can also be used at the microeconomic level to address the same
problems in budgeting of a household or even at the individual level. For instance, by using the PPF/PPC model, a
student can compare their productivity between two subjects and see where he is more effective, thus being able to
make adjustments so that he can improve the one where he is lagging behind (figuring where changes need to be
made to improve his “productivity”).

Summary:

1. Production Possibility Frontier (PPF) is a graphical presentation of the effects of one commodity or product
compared to another.
2. Production Possibility Curve (PPC) is merely another term used in reference to this, but the concepts are the
same.
3. PPF/PPC is often criticized due to the unrealistic assumptions it makes when calculating for the results.
4. PPF/PPC use a simplified model which can be in a concave or a linear representation to determine factors that
can affect the productivity of two goods or services.

Source: http://www.differencebetween.net/business/economics-business/difference-between-ppf-and-
ppc/?fbclid=IwAR2C26Yt-fOXrD9kSnIjBDyZDQ1FFqeMp7nJsDsdhTknji3kzLWXePbx-4o
4. 10 Principles of Economics
How People Make Decisions
1. People face tradeoffs: To get one thing, you have to give up something else. You may have heard economists
say “there is no such thing as a free lunch”. What they mean by this is that, for example, you might get a free bowl of
soup at the student co-op, but the soup is not free because you have to give up 35-minutes waiting in line to be
served.

2. The cost of something is what you give up to get it: Making a decision requires comparing the costs and
benefits of alternative courses of action. The cost of one option is not how much it will cost in dollar terms, but rather
the value of your second best alternative. For more explanation, see understanding the cost benefit analysis.

3. Rational people think at the margin: People make decisions by comparing the marginal benefit with the marginal
cost. For example, you might buy one cup of coffee in the morning because it helps you start the day, but you might
not buy a second cup because this gives you no extra benefit (and costs another $3).

4. People respond to incentives: Behaviour changes when costs or benefits change. For example, if your hourly
wage increases then you are likely to work more (unless of course your income is already too high).
How People Interact
5. Trade can make everyone better off: Trade allows people to specialise in what they do best. By trading, each
person can then buy a variety of goods or services. For example, you may be a skilled management consultant.
Money you earn through your consulting work might be used to build a house even though you may not have the
skills to build the house yourself.

6. Markets are usually a good way to organise economic activity:Individuals and firms that operate in a market
economy respond to prices and thereby act as if guided by an “invisible hand” which leads the market to allocate
resources efficiently. For example, if there is an oversupply of wheat on the world market then individual farmers will
lower the price they charge until they can sell all of their wheat. Lower wheat prices will also likely reduce the total
quantity of wheat that farmers decide to produce. Market prices are able to adjust to equate supply and demand
without the need for any central planning.

7. Governments can sometimes improve market outcomes:Sometimes a market may fail to allocate resources
efficiently, and government regulation can be used to improve the outcome. Market failures can occur due to the
existence of public goods, monopolies and externalities. For example, an electricity supplier might have a monopoly.
Government regulation may be required to ensure that the supplier does not abuse its market power.

How the Economy Works

8. A country’s standard of living depends on its ability to produce goods and services: A country whose
workers produce a large number of goods and services per unit of time will enjoy a high standard of living.

9. Prices rise when the government prints too much money: Printing money causes inflation. When a
government prints money, the quantity of money increases and each unit of money therefore becomes less valuable.
As a result, more money is required to buy goods and services. For more explanation, see quantitative easing.

10. Society faces a short-run tradeoff between inflation and unemployment: Reducing inflation often causes a
temporary rise in unemployment. This tradeoff is the key to understanding the short-run effects of changes in taxes,
government spending and monetary policy. For more explanation, see the Phillips curve.

Source: https://www.spencertom.com/2011/11/23/mankiws-10-principles-of-economics/?fbclid=IwAR16-
mQN8Qlw116vbbAeC5bUxvLk9VSvxIleTcOPPWmebacn1EbMWvrU8jk#.XU6UVlkRWDY