Class 12th Economics Chapter 1 (INTRODUCTION)

Chapter 1 (INTRODUCTION)

Study of allocation of scare resources

               Here scare --> Money

                      |

                      \/                                       

     |                        |                        |

     \/                        \/                        \/

Consumer        Producer         Government

Satisfaction       (Profit)        (Social Welfare)

                     

ECONOMIES

1.Microeconomics - Study of economic problem / economic activity at individual.

2.Macroeconomics - Study of economic problems / economic activity at the level of economy as a 

whole.

Q-1 Difference b/w Microeconomics and Macroeconomics ?

Microeconomics :-

1.Basis of Study- Microeconomics studies problem of scarcity and choice at the level of a individual.

For Example- It studies how a consumer exercises his choice of goods and services. so that the maximise his satisfaction with a given income.

2.Economic Variables - Microeconomics variable such as consumer's demand and producer's supply.

3.Economic Agents - Economics agents of microeconomics are consumers and producers.

4. Degree of Aggregation - There is low level of degree of aggregation of economic variables as compare to macroeconomics. 

5. Different set of Assumptions - Variables of macroeconomics remain constant in microeconomics. 

For Example- Inflation , Deflation , Aggregate Demand & Employment.

6. Central Issue - Allocation of resources is the central issue in microeconomics.

7.  Method of Study - Method of Study in microeconomics is often described as "Partial Equilibrium Analysis".

8. Micro-Macro Paradox - What is logical at the micro level may not be logical at the macro level.

Macroeconomics :-

1. Basis of Study - Macroeconomics of studies problem of scarcity and choice at the level of economy as a hole. For Example- It studies how the national resources are used so that the welfare of all the residence is maximized. 

2. Economic Variable - It used macroeconomics variables such a aggregate demand , aggregate supply & national income etc.

3. Economic Agent - Economic Agent of macroeconomics are state or statutory bodies like RBI and S.E.B.I. and T.R.A.I. .

4. Degree of Education - There is high level of degree of aggregation of economic variables as compare to microeconomics.

5. Different set of Assumptions - Variables of microeconomics remain constant in macroeconomics. For example Consumers Demand and  Producers Supply.

6. Central of Issue - Determination of the overall level of output and employment is the central issue is macroeconomics. 

7. Method of study - Method of study is macroeconomics is often described as "General Equilibrium Analysis".

8. Micro-Macro Paradox - What is Logical at Macro level may not be logical at Micro level.

>Economic Agent :-

Economic Agent refers to the individual and institutions who take economic decisions. 

Individual / Micro Level - Consumer and Producer Motive - Maximization of personal gains.

Institutional / Macro Level  - State or Statutory bodies like RBI , S.E.B.I. & T.R.A.I..

Motive maximization of social welfare.

SCOPE OF MACROECONOMICS 

    (COMPONENTS)

Scope of macroeconomics refers to the field of the study (or area of study) of macroeconomics. It includes the following issues.

1.Estimation of national income and related aggregates :- Macroeconomics starts with the concept of national income. It deals with the estimation and definition of national income and its related aggregate like GDP and NDP.

2.Theory of Employment :- Macroeconomics studies the theory related to employment or unemployment is the economy. It explains the causes of unemployment and suggests the possible remedies to combat it.

3.Theory of Money :- Creation of money by the commercial banks is an important component of macroeconomics linked to it, is the role of Central Bank of a country in regulating the supply of money in the economy.

4.Theory of General Price Level :- They reveals the trend path of the general Price Level leading to          Inflationary and Deflationary Gap in the Economy.

5.Role of the Govt. Budget - Macroeconomics studies how govt. budget impacts the level of economic activity in the economy.

6.Exchange Rate of Balance of Payment - Balance of Payment refers to the statements of accounts showing the monetary transactions of a country with the rest of the world is an accounting year.
Determination of exchange rate and the way it is managed is an important element of the scope of macroeconomics.

SIGNIFICANCE / IMPORTANCE OF MACROECONOMICS :-

1.Description of the Economy :- Macroeconomics offers a deep description of the economy.

>Estimation of national income reveals the nature and level of economic activity in the economy.

>Study of unemployment reveals the magnitude of the problem and the way it is can be handled.

2.Road Map of growth and development :- Macroeconomics offers a road map of growth and development. It tells the problems which occur in the way of development of economy and the programmes and policies made by the govt. to solve them.

3.Economic Stability - Study of Macroeconomics helps achieve economic stability.

Economic / Business Cycle 

                         Boom   -->  Inflation 

                        /                              \
                      /                                  \
                    /                                      \
            Recovery                          Recession
                    \                                       /
                     \                                    /
                       \                                /
                      Depression  --> Deflation

If there is inflation or deflation , there will be economic instability . It tells us about the policies which help is achieved through monetary policy and fiscal / budgetary budget.

4.BOP Status - BOP Status of a country reveals performance of the economy is relation to rest of the world . Balance of trade shows our capacity to export and compulsion to import.

5.Problems and Poverty and Environmental Pollution - Macroeconomics offers insights into the problems of poverty and environmental pollution . It is by using micro - macro models that that there problems are addressed.