Introduction to Economics – Micro and Macro
Topic 1: Introduction to Economics – Micro and Macro.
Introduction to Economics – Micro and Macro
What is Economics?
Economics is the study of how individuals, businesses, governments, and societies make decisions on allocating scarce resources to satisfy their needs and wants. Scarcity — the fundamental economic problem — arises because resources are limited, but human wants are unlimited. This leads to choices and trade-offs.
Example:
Imagine you have ₹100 and can either buy a pizza or watch a movie. If you choose the pizza, you forgo the movie. This decision-making under scarcity is the core of economics.
Microeconomics vs Macroeconomics
Microeconomics
- Focuses on individual units such as households, firms, and markets.
- It studies how prices are set, how firms produce goods, how consumers make choices, etc.
- It’s like zooming into the economy at the ‘micro’ level.
Example:
- If the price of onions rises, how will households adjust their consumption?
- How does Zomato decide how much discount to offer during a festival sale?
- How will a dairy farm decide whether to expand production?
Key Concepts in Microeconomics:
- Demand and Supply
- Price Elasticity
- Cost and Revenue Analysis
- Consumer Behaviour (Utility)
- Market Structures (Perfect Competition, Monopoly, etc.)
Macroeconomics
- Focuses on the entire economy.
- It studies economic aggregates such as GDP, inflation, unemployment, fiscal deficit, etc.
- It’s like looking at the entire forest rather than individual trees.
Example:
- What causes economic recessions?
- How does government spending boost GDP?
- How does inflation affect overall economic growth?
Key Concepts in Macroeconomics:
- National Income Accounting
- Inflation and Deflation
- Fiscal Policy and Monetary Policy
- Business Cycles
- Balance of Payments
Practical & Interesting Examples
Example 1: Petrol Price Hike
- Micro View: How will the rise in petrol prices impact taxi drivers, food delivery services, or the demand for electric scooters?
- Macro View: How does a sustained increase in fuel prices contribute to overall inflation (CPI increase) or affect India’s trade deficit (since we import oil)?
Example 2: COVID-19 Lockdowns
- Micro View: How did lockdowns impact local kirana stores, Zomato deliveries, and school fees collection?
- Macro View: How did the pandemic affect India’s GDP, employment rates, and fiscal deficit?
Example 3: Festival Sale on E-commerce Platforms
- Micro View: How do discounts on Flipkart Big Billion Days affect individual sellers and consumer demand for smartphones?
- Macro View: How do festive seasons boost overall consumption, contributing to India’s economic growth (especially in Q3 GDP)?
MCQs
MCQ 1
Consider the following statements:
- Microeconomics focuses on the behavior of individual firms and consumers.
- Macroeconomics deals with economic aggregates like GDP and inflation.
- Decisions made by a single farmer about which crop to grow would fall under macroeconomics.
Which of the statements given above is/are correct?
a) 1 only
b) 1 and 2 only
c) 2 and 3 only
d) 1, 2 and 3
MCQ 2
Consider the following statements about microeconomics and macroeconomics:
- Microeconomics studies individual market behavior.
- Macroeconomics studies the impact of individual consumer decisions on product prices.
- Microeconomics includes the study of market structures and pricing strategies.
Which of the statements given above is/are correct?
a) 1 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2 and 3
MCQ 3
Consider the following:
- Inflation rate in India
- Price of onions in Delhi
- India’s fiscal deficit
- Revenue of a small bakery in Lucknow
Which of the above falls under the domain of macroeconomics?
a) 1 and 3 only
b) 2 and 4 only
c) 1, 2 and 3 only
d) 1, 2, 3 and 4
MCQ 4
Consider the following statements:
- Both micro and macroeconomics deal with resource allocation.
- Inflation, fiscal deficit, and unemployment are studied under macroeconomics.
- A firm’s pricing strategy is the subject matter of macroeconomics.
Which of the statements given above is/are correct?
a) 1 only
b) 1 and 2 only
c) 2 and 3 only
d) 1, 2 and 3
MCQ 5
Which of the following scenarios is an example of macroeconomic analysis?
a) A family deciding whether to buy a new car or renovate their house
b) Analyzing the impact of interest rate cuts on national GDP
c) A retail store studying customer preferences for online vs offline shopping
d) A farmer choosing between organic and chemical fertilizers
