Economic problems can be analysed or studied in two ways—(i) at individual level, and (ii) at aggregate level. The method of studying at an individual level is known as Micro-Economics and that of studying at an aggregate or collective level is known as Macro-Economics. For the first time, Prof. Ragnar Frisch used the terms Micro and Macro-Economics in the year 1933. In the beginning the stress was on Micro Economics but now both the branches are equally important.
Micro-Economics:
The word Micro in economics has been taken from a Latin word Mikros which signifies small. In Micro-economic theory problems related to individual industries, firms, markets and other economic units are studied.
In this way, under Micro-Economics, economic problems pertaining to individual economic units are studied such as the price determination of a commodity, equilibrium of a firm, equilibrium of an industry etc. In other words, under this branch of economics it is examined as to how the price of a commodity will be determined, how much quantity of a product a firm will produce, how many units of a factor a firm will employ, how many units of a commodity a consumer will demand etc.
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Therefore, as explained above, the main economic problems that form the scope of Micro-Economics are as follows:
(i) Theory of demand
(ii) Production theory
(iii) Price theory
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(iv) Factor pricing
In the words of Prof, Boulding, “Micro-economics is the study of particular firms, particular household, individual price, wage, income and particular commodity.”
Macro-Economics:
The term Macro has been taken from the Latin word Macros which means big. In this way, the study of various economic aggregates is called Macro-Economies. In short, Macro-economic theory is the study of economic aggregates, wherein, economic relations between various aggregates of an economy such as total employment, aggregate demand, national income, total savings, total investment etc. are studied. This study is based on the principle of aggregates wherein aggregates of various units are expressed as a variable. The determination of level of employment and national income is a part of the subject matter of Macro-Economics.
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Therefore, as discussed above, the following economic problems form the subject matter of Macro-Economics:
(i) Theories of Income and Employment
(ii) Theories of International Trade
(iii) Problem related to national income
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(iv) Monetary and Fiscal theories
In the words of Prof. Boulding, “Macro-economic theory is that part of economics which studies the over-all averages and aggregates of the system.”