Lesson 2: Microeconomics and Macroeconomics

LESSON 2
MICROECONOMICS AND
MACROECONOMICS
OBJECTIVES
On completing the module, you should be able to:
 Define Microeconomics
 Discuss the Basic Concepts of Microeconomics
 Identify the uses of Microeconomics
 Explain Macroeconomics
 Discuss the Basic Concepts of Macroeconomics
Understanding Microeconomics
 It is a branch of economics that studies the

behavior of individuals and firms in making
decisions regarding the allocation of scarce
resources and the interactions among these
individuals and firms.
Microeconomics Focuses on:
1.Supply and demand and other forces that

determine price levels in the economy.
2.Understanding human choices and decisions.
3.Allocation of resources of individuals and firms.
Basic Concepts of Microeconomics
The study of microeconomics involves several key concepts, including (but not limited to):
 Incentives and behaviors: How people, as individuals or in firms, react to the
situations with which they are confronted.
 Utility theory: Consumers will choose to purchase and consume a combination of
goods that will maximize their happiness or “utility,” subject to the constraint of how
much income they have available to spend.
 Production theory: This is the study of production—or the process of converting inputs
into outputs. Producers seek to choose the combination of inputs and methods of
combining them that will minimize cost in order to maximize their profits.
 Price theory: Utility and production theory interact to produce the theory of supply and
demand, which determine prices in a competitive market. In a perfectly competitive
market, it concludes that the price demanded by consumers is the same supplied by
producers. That results in economic equilibrium.
Uses of Microeconomics
 Positive Microeconomics
 Normative Microeconomics
Macroeconomics
 It is a branch of economics that study the relationship among the
broad economic aggregates like national income, national output,
money supply, bank deposits, total volume of savings, investment,
consumption, expenditure, general price level of commodities,
government spending, inflation, recession, employment, and money
supply
 Macro implies that it seeks to understand the behavior of the

economy as whole.
Macroeconomics Focuses on Four Specific Sectors of Economy:
1. The behavior of the aggregate household (consumption)

2. The decision making of the aggregate business (investment)
3. The policies and projects of the government (government spending);
and
4. The behavior of external/ foreign economic agents, through trading
(export and import)
Basic Concepts of Macroeconomics
 Income and Output: The national output is the total amount of all
goods and services produced in a country during a specific period. And
when production units or organizations sell everything, they produce,
they generate an equal amount of income.
 Unemployment: Economists measure the unemployment rate in an
economy by calculating the percentage of individuals without jobs.
Unemployment categories include classic unemployment, frictional
unemployment, and structural unemployment.
 Inflation and Deflation: The term inflation refers to an increase in the prices of
goods and services across the country. And the term deflation refers to a decrease in
the prices of goods and services.
 Macroeconomic Policies: is concerned with the operation of the economy as a
whole. In broad terms, the goal of macroeconomic policy is to provide a stable
economic environment that is conducive to fostering strong and sustainable
economic growth, on which the creation of jobs, wealth and improved living
standards depend.
Monetary Policy: The monetary policy is an important process, which is under
the control of the monetary authority of a country.
Fiscal Policy: The fiscal policy is a process that makes use of a government’s
revenue generation and expenditure as tools to control economic windfalls.
THANK YOU!!!

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LESSON 2

 It is a branch of economics that studies the

1.Supply and demand and other forces that

 Macro implies that it seeks to understand the behavior of the

1. The behavior of the aggregate household (consumption)

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