2022

INTERNATIONAL
UNIVERSITY OF EAST
AFRICA(IUEA)
INTRODUCTION TO
MICROECONOMICS
(ECON1101)
NAME: MIKIAS
MHRETEAB TEKLE
REG NO: 22/1476/BBA-S

RESEARCH ON THE CONCEPTS OF ECONOMICS AND THE

DIFFERENCE BETWEEN MICRO AND MACRO ECONOMICS AND
ALSO THE SIGNIFICANCE OF STUDYING ECONOMICS.

[COMPANY NAME] | [Company address]

 INTRODUCTION
On this research we are going to discover the concepts of economics. In this world there
is no end of people wants. When one or two wants is satisfied, more new wants are felt
successively. But the means or resources are limited. People do not get enough resources
to satisfy their unlimited wants. Under this situation we have to choose the more urgent
wants (scale of preference). Economics is an idea which make a relationship between
scarce resources and unlimited wants.
Also we are going to concern on the differences between micro and macro economics
and the significance of studying economics.
CONTENTS
1. Concepts of economics

2. Microeconomics vs macroeconomics

3. Significance of studying economics

 CONCEPTS OF ECONOMICS
The term Economics comes from a Greek word ‘Oikonomia’ means household
management. It has different definitions according to different scientists or economists.
According to Adam Smith who known as by the ‘father of economics’, “Economics is a
social science that enquires into the nature and causes of the wealth of nations”. It is
also the study of how scarce resources can be rationally and optimally exploited and
distributed to satisfy human wants and needs. The knowledge of economics is
indispensable to know about how best to solve the manifold economic problems by the
proper utilization of resources in society.
A scientist named Stiglitz stated that “Economics is a social science that studies the
social problem of choice from a scientific viewpoint, which means that it is built on a
systematic exploitation of the problem of choice”. The subject matter of economics is just
how wealth is produced and how it is used. But in some period Alfred Marshall defined
Economics by saying, ‘Economics is a study mankind in the ordinary business life’. In
other words, He is saying, Economics studies not only the wealth but also the activities
centering the wealth. In social life human wants are unlimited, but the resources or means
to satisfy those wants are scarce.
Economics studies how to use the limited resources to satisfy the unlimited human
wants. In words of Lionel Robins, the modern economist, ‘Economics is a science which
studies human behavior as relationship between ends and scarce means which have
alternative uses’. So, as social science it studies how people perform economic activities
and how they try to satisfy unlimited wants by the proper use of limited resources.
Economics is the study of how societies use scarce resources to produce valuable
commodities and distribute them among different people. It deals with the analysis of
economic problems of people in the society and the satisfaction of their wants. And deals
with the economic activities of human being. For example, One person day to day money
earning and money spending activities constitute the subject matter of economics.
Resources are needed to satisfy people’s wants. So, the availability of resources and their
use are important subject matter of economics. Adam Smith has termed economics as the
“Science of wealth”. Our wants are unlimited but the resources to satisfy the wants are
scarce. Economics discusses how people can get the maximum satisfaction by using the
scarce means to satisfy wants on the basis priority. This scarcity leads us to choice or to
list our prior wants. Such lists of priorities is called scale of preference.
People’s wants are related to production , exchange , distribution and consumption. Again,
currency , banking system , public finance , trade ETC is also part of economic activities.
For example, Economics also discuss how economic development of the country is
achieved through the means of economic planning. There are many examples of
economics, like:
- The study of stock market.
- Supply and Demand.
 - Opportunity cost
MICROECONOMICS VS MACROECONOMICS
Economic analysis is divided into two main branches: microeconomics and
macroeconomics.
A. MICROECONOMICS
-Is the branch of economics that concentrates on the behavior and performance of
the individual economic agents within the economy such as consumers , family ,
industry , firms ETC. It deals with individual economic variables. It’s helpful in
determining the prices of product along with the prices of factors of production
(land , labor , capital) within the economy.
Others define microeconomics as the study of economics at an individual , group ,
or company level. ‘Micro’ is a Greek word means ‘small’. It studies the decisions
of people and business and the interaction of those decisions in markets. The goal
of microeconomics is to explain the prices and quantities of individual goods and
services. The effects of government regulation and taxes on the prices and
quantities of individual goods and services is also part of the microeconomics.
It focuses on issues that affect individuals and companies. Ascertains how the
limited resources are allocated among various individuals to satisfy their wants, as
well as it specifies the conditions for the best possible utilization of the
resources , in order to attain maximum output and social welfare.
It determines many things like what products and how many products the firm
should manufacture to sell? Analyzes how individuals and households spend their
income? Individual income , savings , demand , supply , production , consumption and
consumer equilibrium are some of the examples of microeconomics.

B. MACROECONOMICS
-Is the study of the national economy as well as global economy and the way that a
economic system works. Macro means ‘big’. It studies a national economy as a whole.
Focusses on issues that affect nations and the world economy and on the behavior and
performance of aggregate variables.
Includes regional , national and international economies and covers the major areas of the
economy. Macroeconomics discusses how the equilibrium is attained as a result of
changes in the macroeconomic variables. GDP , economic growth , imports and exports ,
monetary policy , unemployment , poverty , general price level , interest rates , inflation ETC
are some examples of macroeconomics.

-The points given below explains the difference between micro and macro economics in
detail:
1. Microeconomics studies the particular segment of the economy, i.e. an individual ,
household , firm or industry. It studies the issues of the economy at an individual level.
On the other hand, Macroeconomics studies the whole economy, that does not talk about a
single unit rather it studies aggregate units, such as national income , general price level ,
total consumption etc. It deals with broad economic issues.
[Link] is applied to operational or internal issues, whereas macroeconomics
concerned on environmental and external issues.
3. Micro stresses on individual economic units. As macro focus on aggregate economic
units.
4. The basic tools of microeconomics is demand and supply. Conversely, aggregate supply
and aggregate demand are primary tools for macroeconomics.
5. Micro covers issues like how the price of particular commodity will affect its quantity
demanded and quantity supplied and vice versa. In contrast, Macroeconomics covers major
issues of an economy like unemployment , poverty , international trade , inflationary
increase in prices etc.
6. Microeconomics determine the price of particular commodity along with the prices of
complementary and the substitute goods, whereas the macroeconomics helps maintain the
general price level, as well as it helps in resolving major economic issues like inflation ,
disinflation , poverty , unemployment etc.
7. While analyzing any economy, microeconomics takes a bottom-up approach, whereas the
macroeconomics considers a top-down approach.

THE SIGNIFICANCE OF STUDYING ECONOMICS

There are different economic problems that we people face in our real life. Studying
economics can help us in solving these problems and provides us knowledge. Nowadays
the importance of studying economics is infinite. In below we will see some of the
importance of economics in different sectors of human life:
In the daily life of people: We people have unlimited wants in our daily life. But the
resources or means to satisfy those wants are limited or scarce. By studying economics
we can know the use of limited resources to satisfy alternative wants on the basis of
priority.
In state management: The knowledge of economics is necessary to manage the
economic and development activities of state. So, The government officials need to have
proper knowledge of the currency system , banking system , tax system etc.
In proper use of resources: By studying economics we can know the use of resources. It
helps us to understand about how to produce maximum output by the proper use of
limited resources.
To social workers: Economic causes lie at the roots of maximum social problems. Social
workers need to have knowledge of economics to diagnose and solve the problems of
poverty , unemployment , illiteracy , excessive growth of population , lack of housing and
medical facilities etc.
To the labor leaders: The leaders of the workers should have the knowledge of
economics for improving their bargaining capacity in respect of the formation of trade
unions, the increase of wage and other benefits, the improvement of their working
conditions etc.
Also the knowledge of economics is necessary in acquisition of knowledge of
international issues. That means to know and understand the socio economic events of
different countries.

To conclude , Studying the whole Economics is becoming more valuable and important
nowadays as the world’s resources are becoming more scarce and scarce through time
and the economic competition of countries becomes more stronger. Creating a society
which is conscious in economics (economic society) can help the country to produce
more outputs by proper use of limited resources and increase its economic growth and
development which also provide or fulfill high satisfaction of its people’s wants.

References
[Link] [Link]
[Link] [Link]
[Link] gain tutorials(AGT)
4. ‘Principles of Economics’ by N. Gregory Mankiw
5. [Link]