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Methodology of studying economics

The subject matter of economics has been divided into two parts: Micro Economics and Macro Economics. Though both are different, they are inter-dependent.

Micro economics

The term “micro” is derived from the Greek word “mikros” which means small. In micro economics, we study the economic behaviour of an individual, firm or industry in the national economy. It is also called as the slicing method. As it divides the economy into small units and analyses each and every unit in detail, it is a microscopic study of the working of the economy. It is also known as “price theory” as it deals with the determination of prices of commodities and factors. It solves three of the basic economic problems of what, how and for whom to produce. It is unrealistic as it is based on assumptions.


Note: By factors, we mean land, labour, capital and enterprise.


Under micro-economics, we study
  • Product pricing
  • Consumer behaviour
  • Factor pricing
  • Economic conditions of a section of the people
  • Study of firms
  • Location of an industry
  • Study of lock out at TELCO, finding causes of failure of A & Co.
  • How does the change of price of a good influence a family’s purchasing decisions? If wages rise, will the person be inclined to work more hours or less hours?

Macro economics

The term “macro” is derived from the Greek word “macros” which means large. It is also called the lumping method or telescopic method. Under macro economics, we study the working and performance of the economy as a whole. It is also called as “income theory”, as it deals with the determination of income and unemployment. Here, a detailed study is not possible and no assumption is made because we deal with it in one stretch, hence it is realistic. It gives a bird’s eye view about the subject. In this we study about total consumption, savings and investment etc.,
Under macro economics, we study:
  • National income and output
  • General price level
  • Balance of trade and payments
  • External value of money
  • Savings and investment
  • Employment and economic growth

Study of per capita income of India, under-employment in the agriculture sector, savings of India, causes of inflation, etc.

Differences between Micro economics and Macro economics

Micro approach

Macro approach

1. Studies a particular part or a component of the economy

Studies the economy as a whole

2. It is known as ‘Price Theory’

It is known as ‘Income Theory’

3. Makes assumptions while studying an economy

Doesn’t make any assumptions

4. It gives a worm’s eye view of an economy

It gives a bird’s eye view of an economy

5. It is unrealistic study

It is more realistic study

6. Has limited scope

Has wider scope

7. It is known as Microscopic study

It is known as Telescopic study

8. Studies bit by bit

Studies whole economy at one stretch

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