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(ii) Assumption of liaises fair policy which is no longer in practice in any country of the world.
#MICRO VS MACRO ECONOMICS FULL#
(i) Assumption of full employment in the economy which is unrealistic.
#MICRO VS MACRO ECONOMICS FREE#
Microeconomics is not free from limitations (disadvantages). Micro economic involves the study of welfare economics. The micro economics reveals how a free enterprise economy functions without any central control. (iii) Working economy without central control. Micro economics help in explaining the conditions of efficiency in consumption, production and in distribution of the rewards of factors of production. (ii) Helps in knowing the conditions of efficiency. It tells us as to how the prices of the products and the factors of production are determined. The micro economics helps us to understand the working of free market economy. (i) Helpful in understanding the working of private enterprise economy. The importance and uses of micro economics in brief are as under. The classical economics as well as the neo-classical economics belonged to the domain of micro economics.
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Importance, Advantages and Uses:īefore Keynesian revolution, the body of economics mainly consisted of micro economics. The price theory shows under that conditions, such efficiencies are achieved. Economic efficiency involves (a) efficiency in consumption (b) efficiency in production and distribution and (c) over all economic efficiency. The micro economic theory seeks to explain whether the problems of scarcity and allocation of resources so determined are efficient. (ii) Micro economics and economic efficiency. Thus the theory of product pricing and the theory of factor pricing (rent wages, interest and profit) fall within the domain of micro economics. Microeconomics analyses how the relative prices of goods and factors are determined. The allocation of resources to the production of goods depends upon the price of various goods and the prices of factors of production. It seeks to explain how they are allocated to the production of goods. The micro economic theory takes the total quantity of resources as given. (i) Microeconomics and allocation of resources. “ Microeconomic theory or price theory deals with the economic behavior of individual decision making units such as consumers, resources owners, business firms as well as individuals who are too small to have an impact on the national economy”. “Microeconomics we examine among other things how individual prices are set, consider what determines the price of land and capital and enquire into the strength and weaknesses of market mechanics”. Similarly, in micro economic theory we study the behavior of individual firms the fixation of prices output. For instance, in micro economic analysis we study the demand of an individual consumer for a good and from there we go to derive the market demand for a good (that is demand of a group of individuals for a good).
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The micro economic theory or price theory thus is the study of individual parts of the economy”. “Microeconomics (Price Theory) is the study of specific individual units particular firms, particular households, individual prices, wages, individual industries particular commodities. Microeconomics is a Greek word which means small. The relationship and difference between micro and macro economics is made clear below: (1) Microeconomics (Price Theory): Definition: Relationship and Difference between Microeconomics and Macroeconomics: In recent years, division of economic theory into two separate parts has gained much importance. These two terms microeconomics and macroeconomics were first coined and used by Ranger Frisco in 1933. One of them is called Microeconomics and the other is called Macroeconomics. New York: Norton.In recent years, the subject matter of economics is divided into two broad areas.
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Microeconomic Foundations of Employment and Inflation Theory. Liquidity preference and the theory of interest and money. Federal Reserve Bank of Minneapolis Quarterly Review 3(2), Spring, 1–16. Journal of Economic Theory 4(2), April, 103–24. Expectations and the neutrality of money. American Economic Review 75(1), March, 88–100. Transaction costs and the theory of unemployment. Mr Keynes and the ‘classics’: a suggested interpretation. Journal of Political Economy 90(5), October, 881–94. Aggregate demand management in search equilibrium. Brechling, London: Macmillan.ĭiamond, P.A. The Keynesian counter-revolution: a theoretical appraisal. American Economic Review 61(1), March, 82–93.Ĭlower, R.W. A general disequilibrium model of income and employment. Journal of Political Economy 75, October, 730–37.īarro, R.J. Abramovitz et al., Stanford: Stanford University Press.Īrrow, K.J. In The Allocation of Economic Resources, ed.