Microeconomics and Macroeconomics
Class 11 Microeconomics — The Two Broad Branches of Economics
The Two Branches of Economics
The subject matter of economics has been studied under two broad branches: Microeconomics (Price Theory) and Macroeconomics (Income Theory).
Microeconomics
Greek 'mikros' (small). Founder: Adam Smith. Memory aid: 'I' = 'Individuals'.
Macroeconomics
Greek 'makros' (large). Deals with inflation, unemployment, poverty. Memory aid: 'A' = 'Aggregates'.
Micro vs Macro — Detailed Comparison
| Aspect | Microeconomics | Macroeconomics |
|---|---|---|
| Meaning | Studies individual units of an economy. | Studies aggregates of the economy as a whole. |
| Tools | Demand and Supply. | Aggregate Demand and Aggregate Supply. |
| Basic Objective | Determines price of a commodity or factor. | Determines income and employment level of the economy. |
| Other Name | Price Theory. | Income and Employment Theory. |
| Examples | Individual income, individual output. | National Income, National output. |
Interdependence
Micro and Macro are interdependent — the analysis of an economy cannot be split into watertight compartments.
Micro Macro
Macro Micro
Micro-Macro Paradoxes
An act beneficial for an individual may harm the economy as a whole. Example (Saving Paradox): If one person saves, their family benefits. But if everyone saves, aggregate demand falls → output ↓ → employment ↓ → income ↓ — the whole economy suffers.
Which is More Important?
Key Takeaways
- Microeconomics studies individual units; Macroeconomics studies aggregates.
- Micro uses Demand and Supply; Macro uses Aggregate Demand and Aggregate Supply.
- The two branches are interdependent — neither is superior.