What is Microeconomics? Definitions Meaning Introduction to Microeconomics The whole economic theory is broadly divided into two parts micro-economics and macro-economics.
These two terms were at first coined and used by Ragnar Frisch in 1933. Maurice Dobb had used the terms ‘micro-scopic’ and ‘macro-scopic’ to denote the same meaning as the words used by Frisch.
But the terms used by Frisch became popular worldwide and its use has become widespread now.
Introduction / Definitions of Microeconomics
The terms ‘micro’ and ‘macro’ were derived from Greek words “mikros’ and ‘makros’ meaning ‘small’ and large’ respectively therefore, evident that micro-economics deals with the analysis of an individual unit and macro-economics with economy as a whole According to Stonier and Hague “Micro-economics looks at what happens in particular parts of the economy and macro-economics looks at the economy as a whole.
” For example, in microeconomics, we study how price whether of goods or factors of production are determined. In macro-economics we study what are the causes of the high or low level of employment.
Edwin Mansfield has seconded this view in these words – “Micro-economics deals with the economic behavior of individual units such as consumers, firms, and resource owners; while macro-economics deals with the behavior of economic aggregates such as gross national product and the level of employment.”
The economic theories of classical economists like Adam Smith, David Ricardo. T.R. Malthus, and J.S. Mill were mainly of micro-economic nature.
But the economic theories of neo-classical economists like Alfred Marshall and A.C. Pigou were of macro- economic nature.
Macro-economics was developed and popularized by the famous economist of 20h century J.M. Keynes in a book ‘A General Theory of Employment.
Interest and Money’ published in 1936. Since Keynes gave new shape to the theories of economics, his macro economic analysis is often called ‘Keynesian revolution’ and new economics.
Meaning of Microeconomics
The term ‘micro’ was derived from the Greek word ‘mikros’ meaning small. Micro-economics, thus, denotes the study of small individual units.
For example, in micro-economics, we study as to how a firm maximizes profit or how a consumer maximizes satisfaction from his purchases.
The meaning of micro-economics can be made clearer with the help of its definitions.
In the words of Edward Shapiro, “Micro-economics is concerned not with total output, total employment or total spending industries and with the spending on particular goods and services by but with the output of particular goods and services by single firms or single households or by households in single markets.”
It is now evident that micro-economics does not study the economy as a whole. This study is related to a particular unit.
For example, in micro-economics, we study how a firm determines its quantity of production and price or how it determines the wages of labour.
Since micro-economics studies how prices of goods and factors of production are different uses, it is also called determined and how resources are allocated in Price Theory.