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Economic Theories

Macro and Micro Economics

Macro Economics may be defined as that branch of economic analysis which studies the behaviour of not one particular unit, but of all the units combined together. Macroeconomics is a study of aggregates. It is the study of the economic system as a whole � total production, total consumption, total savings and total investment. The following are the fields covered by macroeconomics:
  • Theory of Income, Output and Employment with its two constituents, namely, the theory of consumption function, the theory of investment function and the theory of business cycles or economic fluctuations.
  • Theory of Prices with its constituents of the theories of inflation, deflation and reflation.
  • Theory of Economic Growth dealing with the long-run growth of income, output and employment.
  • Macro Theory of Distribution dealing with the relative shares of wages and profits in the total national income.
The study of macroeconomics is indispensable as it is the main agent for formulation and successful execution of government economic policies. It is also indispensable for the formulation of microeconomic models.

Microeconomics may be defined as that branch of economic analysis, which studies the economic behaviour of the individual unit, maybe a person, a particular household, or a particular firm. It is a study of one particular unit rather than all the units combined together. In microeconomics, we study the various units of the economy, how they function and how they reach their equilibrium. An important tool used in that of microeconomics is that of Marginal Analysis. In fact, it is an indispensable tool used in microeconomics. Some of the important laws and principles of microeconomics have been derived directly from marginal analysis. The following are the fields covered by microeconomics:
  • Theory of Product pricing with its two constituents, namely, the theory of consumer behaviour and the theory of production and costs.
  • Theory of Factor pricing.
  • Theory of Economic Welfare.

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Economic Theories
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