• The British economist Alfred Marshall defined
economics as the “study of mankind in the ordinary
business of life; it examines that part of individual
and social actions which is most closely connected
with the attainment and with the use of the
material requisites of well being.”
• Microeconomics and macroeconomics are the two main
pillars of modern economic theory. Another name for
microeconomics is price theory and the corresponding
name for macroeconomics is income theory.
• the division became transparent only during the 1930s.
• The terms microeconomics and macroeconomics were
first coined and used by a Norwegian economist Ragnar
Frisch of Oslo University, in 1933. The prefixes micro and
macro have been derived from the Greek words mikros
meaning small and makros meaning large.
• Microeconomics owes its origin to the classical
economists. It originated with Adam Smith, and
culminated with Alfred Marshall. Marshall’s
Principles of Economics is an outstanding example
of microeconomic analysis. Other notable
economists who made their distinctive contribution
to microeconomics are E.H. Chamberlin, Mrs. Joan
Robinson and J.R. Hicks.
• Micro means a small part. Thus, microeconomics is
the study of the economic actions of individuals
and small group of individuals. The small group of
individuals may be households, firms and industries
consisting of several firms. Microeconomics
explains how and why these units make decisions.
• “Microeconomics studies the economic decision making
of firms and individuals in a market setting; it is the study
of the economy in the small” - Roy J Ruffin
• Microeconomics studies how business firms operate
under different competitive conditions, and how the
combined actions of buyers and sellers determine prices
in specific markets. Since microeconomics splits up the
entire economy into smaller parts for the purpose of
intensive study, it is also known as slicing method. The
subject matter of microeconomics fundamentally covers
the following areas: (i) Theory of value, product pricing
and factor pricing (ii) Theory of economic welfare.
• macroeconomics is rightly considered as the “Child
of the Great Depression of 1930s”.
• Macroeconomics is concerned with the economy as
a whole or large segment of it.
• it is concerned with such items as national output,
inflation, unemployment, taxes, and economic
indicators that reflect the wealth of the national
economy.
• macroeconomics splits up the economy into big
lumps for the purpose of study, it is also called the
method of lumping.
• “Macroeconomics is concerned with the
determination of the broad aggregates, in the
economy such as national product, employment,
the price level and the balance of payments”
Meaning
• Microeconomics is the • Macroeconomics is the
branch of Economics branch of Economics that
that is related to the deals with the study of the
study of individual, behaviour and
household and firm’s performance of the
economy in total. The most
behaviour in decision important factors studied
making and allocation of in macroeconomics involve
the resources. It gross domestic product
comprises markets of (GDP), unemployment,
goods and services and inflation and growth rate
deals with economic etc.
issues.
Areas of study
• Microeconomics • Macroeconomics
studies the particular studies the whole
market segment of the economy, that covers
economy several market
segments
Deals with
• Microeconomics deals • Macroeconomics deals
with various issues like with various issues like
demand, supply, factor national income,
pricing, product pricing, distribution,
economic welfare, employment, general
production, price level, money, and
consumption, and more.
more.
Application
• It is applied to internal • It is applied to
issues. environmental and
external issues.
Scope
• It covers several issues • It covers several issues
like demand, supply, like distribution,
factor pricing, product national income,
pricing, economic employment, money,
welfare, production, general price level, and
consumption, and more.
more.
Significance
• It is useful in regulating • It perpetuates firmness
the prices of a product in the broad price level,
alongside the prices of and solves the major
factors of production issues of the economy
(labour, land, like deflation, inflation,
entrepreneur, capital, rising prices (reflation),
and more) within the unemployment, and
economy poverty as a whole.
Limitations
• It is based on • It has been scrutinised
impractical that the misconception
presuppositions, i.e., in of composition’
microeconomics, it is incorporates, which
presumed that there is sometimes fails to
full employment in the prove accurate because
community, which is it is feasible that what is
not at all feasible. true for aggregate
(comprehensive) may
not be true for
individuals as well.