Chapter 1, Problem 1.1LO

To determine

To discuss:

The definition of Economics and the difference between Macroeconomics and Microeconomics.

Concept Introduction:

Economics:

It is the study of how people allocate their limited resources to satisfy their unlimited wants. In other words, it is a branch of knowledge which determines and establishes a concrete evidences for the research in the production, consumption and the transfer of wealth.

It deals with production, distribution, and consumption of goods and services.

Micro Economics:

It is study of the single unit or concerned with single factors such as individuals (or households) and by firms. It only considers a study of individual decisions and its impacts.

Macro Economics:

It is the study of the behavior of the economy as a whole, including such phenomena as changes in unemployment, the general price level, and national income.

Explanation of Solution

Answer:

Economics is a study of the general productivity, consumption and transfer of wealth considered in a micro & macro levels.

The main difference between the microeconomics&macroeconomics is that Micro-Economics is a study of economics at an individual level, while Macro-Economics is a study of the national economy as a whole.

For example, Micro-Economics will consider individual firm decision or the individual decision while studying the specific studies such as rise/fall in consumer goods.

While Macro-Economics takes into the consideration aggregate repercussion on the economy due to the cumulative effect of the many firms or people.

Other examples for Micro-Economic analysis would include:

• The effects of changes in the price of gasoline relative to that of other energy sources.
• The effects of new taxes on a specific product or industry.
• If the government establishes new health care regulations, how individual firms and consumers would react to those regulations.
• The effects of higher wages brought about by an effective union strike.

In contrast, Macro-Economic analysis would include issues such as follows:

• The rate of inflation and the level of unemployment.
• The yearly growth in the output of goods and services produced in a nation.