Chapter 12, Problem 1P

To determine

The questions that are relevant for the study of macroeconomics and that of microeconomics.

Concept Introduction:

Microeconomics: It refers to the economy which deals with an individual unit. Its different variables are individual demand, individual supply, price determination of a product, consumer equilibrium and theory of demand. Main tools of microeconomics are demand and supply. Problem of resource allocation is the principle issue in microeconomics.

Macroeconomics: It refers to the economy which deals with the economy as a whole.

Its different variables are aggregate demand, aggregate supply, national income, determination of equilibrium level of income, output and employment. Main tools of macroeconomics are aggregate demand and aggregate supply. Level of output and employment is the principle issue in macroeconomics.

Explanation of Solution

a. Change M’s tips, when a large manufacturing plant near the restaurant where she works closes.

This is a case of microeconomics.

• Microeconomics always deals with unit analysis, that is with small units of the economy like individual consumer, individual producer and individual firm.

• Therefore, the effect of the closure of a large manufacturing plant on M tips who is working in a nearby restaurant is a microeconomics concept.

Conclusion:

Thus, it is microeconomics study.

b. Effect on spending of consumers when the economy enters a downturn.

This is a case of macroeconomics.

• Macroeconomic deals with the economy as a whole. It is an aggregate analysis as it studies about the aggregates and averages like total output, national income and total employment.

• Therefore, the effect of recession in the economy on the aggregate spending of the consumer is the study of macroeconomics.

Conclusion:

Thus, it is a macroeconomics study.

c. Change in price of oranges when a late frost damages F’s orange groves.

This is a case of microeconomics.

• Microeconomics always deals with unit analysis that is with small units of the economy like individual consumer, individual producer and individual firm.

• Therefore, the price of oranges and changes in it due to late frost which damages F’s orange groves is an individual concept.

Conclusion:

Thus, it is microeconomics study.

d. Change in wages at a manufacturing plant when its workforce unionized.

This is a case of microeconomics.

• Microeconomic always deals with unit analysis that is with small units of the economy like individual consumer, individual producer and individual firm.

• As it is the study of a particular manufacturing plant where labor union was formed to affect the wages of the particular firm. Therefore, it is a microeconomics concept.

Conclusion:

Thus, it is a microeconomics study.

e. Effect on the U.S. export if dollar becomes less expensive in terms of other currencies.

This is a case of macroeconomics.

• Macroeconomic deals with the economy as a whole, it is an aggregate analysis as it studies about the aggregates and averages like total output, national income and total employment.

• As the exports of the country are affected due to fall in dollar price in the foreign exchange market, it is a study about the general concept. Therefore, it is a macroeconomics concept.

Conclusion:

Thus, it is a macroeconomics study.

f. Relationship between a nation’s unemployment rate and its inflation rate.

This is a case of macroeconomics.

• Macroeconomic deals with the economy as a whole, it is an aggregate analysis as it studies about the aggregates and averages like total output, national income and total employment.

• As the unemployment rate and inflation is aggregate concept, it is a macroeconomics concept.

Conclusion:

Thus, it is a macroeconomics study.