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Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics Notes

Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics :Karnataka State Open University is located in Manasagangotri, Mysore. It is recognized as one of the best Open Universities in India imparting Distance Education. The University was established during 1996 and the library started functioning in the same year.

It has a glorious record of worthy service with a multi disciplinary resource collection of more than one lakh volumes. At the inception of Library, the collection of books was around 50,000, which was housed in the main building of KSOU but later the Library was shifted to its own new building in the KSOU campus in 2006.

Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics Notes

Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics :Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics is one of the Karnataka Class 12 Commerce Economics chapter 1 Introduction sub topic. Here we collected some PDF Format Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics Notes. Download and read well.

Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics Notes

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Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics : Economics is a discipline that can help us answer these questions. Economics can actually be defined a few different ways: it’s the study of scarcity, the study of how people use resources, or the study of decision-making. Economics often involves topics like wealth, finance, recessions, and banking, leading to the misconception that economics is all about money and the stock market. Actually, it’s a much broader discipline that helps us understand historical trends, interpret today’s headlines, and make predictions for coming decades.

Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics Notes

Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics : In recent years, the subject matter of economics is divided into two broad areas. One of them is called Microeconomics and the other is called Macroeconomics. These two terms microeconomics and macroeconomics were first coined and used by Ranger Frisco in 1933. In recent years, division of economic theory into two separate parts has gained much importance.

a) 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 microeconomics models.

b) 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.

Download here Karnataka Class 12 Commerce Economics Concepts Of Micro And MacroEconomics Complete Details in PDF Format

Distinction/Difference Between Micro and Macro Economics:

The distinction/difference between Micro and Macro economics is made clear below:

(1) Microeconomics:

Definition:

Microeconomics is a Greek word which means small.

“Microeconomics is the study of specific individual units; particular firms, particular households, individual prices, wages, individual industries particular commodities. The microeconomic theory or price theory thus is the study of individual parts of the economy”.

It is economic theory in a microscope. For instance, in microeconomic analysis we study the demand of an individual consumer for a good and from there we go to derive the market demand for a good (that is demand of a group of individuals for a good). Similarly, in microeconomic theory we study the behavior of individual firms the fixation of prices output. In the words of Samuelson:

“Microeconomics we examine among other things how individual prices are set, consider what determines the price of land and capital and enquire into the strength and weaknesses of market mechanics”.

In the words of Leftwitch:

“Microeconomic theory or price theory deals with the economic behavior of individual decision making units such as consumers, resources owners, business firms as well as individuals who are too small to have an impact on the national economy”.

Explanation:

(i) Microeconomics and allocation of resources. The microeconomic theory takes the total quantity of resources as given. It seeks to explain how they are allocated to the production of goods. The allocation of resources to the production of goods depends upon the price of various goods and the prices of factors of production. Microeconomics analyses how the relative prices of goods and factors are determined. Thus the theory of product pricing and the theory of factor pricing (rent wages, interest and profit) fall within the domain of micro economics.

(ii) Micro economics and economic efficiency. The microeconomic theory seeks to explain whether the problems of scarcity and allocation of resources so determined are efficient. Economic efficiency involves (a) efficiency in consumption (b) efficiency in production and distribution and (c) over all economic efficiency. The price theory shows under hat conditions these efficiencies are achieved.

Importance:

Before Keynesian revolution, the body of economics mainly consisted of micro economics. The classical economics as well as the neo-classical
economics belonged to the domain of micro economics.

The importance and uses of micro economics in brief are as under.

(i) Helpful in understanding the working of private enterprise economy. The micro economics helps us to understand the working of free market economy. It tells us as to how the prices of the products and the factors of production are determined.

(ii) Helps in knowing the conditions of efficiency. Micro economics help in explaining the conditions of efficiency in consumption, production and in distribution of the rewards of factors of production.

(iii) Working economy without central control. The micro economics reveals how a free enterprise economy functions without any central control.

(iv) Study of welfare economy. Micro economic involves the study of welfare economics.

Limitations:

Microeconomics despite its many advantages is not free from limitations. They in brief are:

(i) Assumption of full employment in the economy which is unrealistic.

(ii) Assumption of liaises fair policy which is no longer in practice in any country of the world.

(iii) It studies part of the economy and not the whole.

Summing up, microeconomics is the study of the decisions people and businesses and the interaction of those decisions in the market. It analyses the ‘trees’ of the economy as distinct from the ‘forest’.

(2) Macroeconomics:

Definition:

The term macro is derived from the Greek word ‘uakpo’ which means large. Macroeconomics, the other half of economics, is the study of the behavior of the economy as a whole. In other words:

Macroeconomics deals with total or big aggregates such as national income, output and employment, total consumption, aggregate saving and aggregate investment and the general level of prices”. In the words of Boulding:

“Macroeconomics deals not with individual quantities as such but with aggregates of these quantities, not with individual i.e., but with the national Income, not with individual prices but with the price level, not with Individual outputs but with the national output. It studies determination of national output and its growth overtime. It also studies the problems of recession, unemployment inflation, the balance of international payments and the policies adopted by the governments to deal with these problems”.

Explanation:

The main issues which are addressed in macro economics are in brief as under:

(i) It helps understanding determination of income and employment. Late J.M. Keynes laid great stress on macro-economic analysis. In his revolutionary book, “General Theory, Employment interest and Money” brought drastic changes in economic thinking. He explained the forces or factors which determine the level of aggregate employment and output in the economy.

(ii) Determination of general level of prices. Macro economic analysis answers questions as to how the general price level is determined and what is the importance of various factors which influence general price level.

(iii) Economic growth. The macro-economic models help us to formulate economic policies for achieving long run economic growth with stability. The new developed growth theories explain the causes of poverty in under developed countries and suggest remedies to overcome them.

(iv) Macro economics and business cycles. It is in terms of macroeconomics that causes of fluctuations in the national income are analyzed. It has also been possible now to formulate policies for controlling business cycles i.e. inflation and deflation.

(v) International trade. Another important subject of macro-economics is to analyze the various aspects of international trade in goods, services and balance of payment problems, the effect of exchange rate on balance of payment etc.

(vi) Income shares from the national income. Mr. M. Kalecki and Nicholas Kelder, by making departure from Ricarde theory, have presented a macro theory of distribution of income. According to these economists, the relative shares of wages and profits depend upon the ratio of investment to national income.

(vii) Unemployment. Another macro economic issue is to explain the causes of unemployment in the economy. Stagflation is another important issue of modern, economics. The Keynesian and post Keynesian economists are putting lot of efforts in explaining the causes of cyclical unemployment and high unemployment coupled with inflation and suggesting remedies to counteract them.

(viii) Macro Economic Policies. Fiscal and monetary policies affect the performance of the economy. These two major types’ policies are central in macro economic analysis of the economy.

(ix) Global Economic System. In macro economic analysis, it is emphasized that a nation’s economy is a part of a global economic system. A good or weak performance of a nation’s economy can affect the performance of the world economy as a whole.

Limitations:

The main limitations of macro economics are as follows:

(i) The macro economies ignore the welfare of the individual. For instance, if national saving is increased at the cost of individual welfare, it is not considered a wise policy.

(ii) The macro economics analysis regards aggregates as homogeneous but does not look into its internal composition. For instance, if the wages of the clerks fall and the wages of the teachers rise, the average wage may remain the same.

(iii) It is not necessary that all aggregate variables are important. For instance, national income is the total of individual incomes. If national income in the country goes up, it is not necessary that the income of all the individuals in the country will also rise. There is a possibility that the rise in national income may be due to the increase in the incomes of a few rich families of the country.

Interdependence of Micro and Macro Economics:

The classical approach to macro economics is that individuals and firms act in their own best interest. The wages and prices adjust quickly to achieve equilibrium in the free market economy.

The Keynesian approach to macro economics is that wages and prices do not adjust rapidly and unemployment may remain high for a long time. The Keynesians are of the view that government intervention in the economy can help in improving economic performance.

Conclusion:

The micro and macro economics are interdependent. They are complementary and not conflicting. We cannot put them in water tight compartments. Both these approaches help us in analyzing the working of the economy. If we study one approach and neglect the other, we are considered to be only half educated.

We should integrate the two approaches for the successful analysis of the working of economic system. The macro approach should be applied where aggregate entities are involved and micro approach when individual cases are to be examined. If we ignore one and lay emphasis on the other, it will lead to wrong or inadequate conclusions.

Karnataka Class 12 Commerce Economics Concepts Of Micro And Macro-Economics Notes

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Important Note – Preparing for XI & XII Commerce?
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