Keynes showed that the rate of interest was determined by the liquidity preference function and the stock or supply of money in the economy. Managerial Economics and Micro Economics All the firms operating in the market have to take under consideration the constituent of the economic environment for its proper functioning. Both fields of economics are interdependent At first glance, micro and macro economics might seem completely different from one another. Macroeconomics should be carefully distinguished from microeconomics. But they also study the minute world of atoms and the tiny particles that comprise those atoms. His approach was taken up by other leading economists and developed rapidly into what is now known as macroeconomics. But macroeconomics may also contribute to microeconomic understanding.
Meaning of Macroeconomics: Macroeconomics is the study of aggregates or averages covering the entire economy, such as total employment, unemployment, national income, national output, total investment, total consumption, total savings, aggregate supply, aggregate demand, and general price level, wage level, interest rates and cost structure. Profits, investment and output will decline, unemployment will spread and ultimately the economy will be faced with depression. In this system, consumers and firms are linked through the product market where goods and services are bought and sold. Thus the theory of product pricing and the theory of factor pricing or the theory of distribution falls within the domain of microeconomics. There have been competing explanations for issues such as inflation, recessions and economic growth.
Managerial Economics applies the theories of Micro Economics to resolve the issues of the organization and for decision making. Indiscriminate Use of Macroeconomics Misleading: An indiscriminate and uncritical use of macroeconomics in analysing the problems of the real world can often be misleading. What causes firms to hire more workers or to lay workers off? The distinction between macro and micro economics is the most usual classification of economic analysis. Microeconomic theory spells out the conditions of efficiency i. It ended with the Great Depression of the 1930s.
The field of study is vast; so here is a brief summary of what each covers. Besides, microeconomics finds application in the various problems of international economics. Though the principles of evolution such as genetics, mutation, natural selection, and migration remain the same across microevolution as well as macro evolution, this distinction between microevolution and macroevolution is a great way to explain this natural phenomenon. In microeconomic theory, the profits are regarded as reward for uncertainty bearing but microeconomic theory fails to show the economic forces which determine the magnitude of profits earned by the entrepreneur and why there are fluctuations in them. Moreover, economists generally agree on the principles of microeconomics. The theories regarding the behaviour of some macroeconomic aggregates but not all are derived from theories of individual behaviour. Macroeconomics is a study of aggregates.
In the realm of microeconomics, the object of analysis is a single market—for example, whether price rises in the automobile or oil industries are driven by changes. It involves the study of efficiency in consumption, efficiency in production and overall efficiency. Macro economics is more contentious. It is also indispensable for the formulation of microeconomic models. When will a firm decide to expand, downsize, or even close? Micro economics tends to work from theory first.
In such economy there is no agency to plan and coordinate the working of the economic system. Supply and demand refers to goods and services and the concept is the hallmark of much of business. As against this, the focus of macro economics is on aggregate economic variables. In this system, all prices are relative to one another. Such a general theory exists, but its very generality leaves it with little substantive content.
Besides, microeconomics studies how efficiently the various resources are allocated to individual consumers and producers within the economy. Microeconomic theory contributes to macroeconomic theory in another way also. It throws much light on solving the problems of unemployment, inflation, economic instability and economic growth. Therefore, to explain how the allocation of resources is determined, microeconomics proceeds to analyse how relative prices of goods and factors are determined. His macro-economic model reveals how consumption function, investment function, liquidity preference function, conceived in aggregative terms, interact to determine national income, employment, interest and the general price level.
On a microeconomic level, this has several effects. Variables can be a characteristic of an economic agent, a number or quantity. Optimum decision making to achieve the objective of the organisation i. Thus microeconomics is the study of the interdependence of commodity prices, factor prices, their demands and supplies and costs, in relation to individual consumers, firms and industries. In the monetary sphere, it studies the effect of the total quantity of money on the general price level.