Thursday, April 15, 2010
Dependence of micro-economic on macro-economis and dependence of micro-economics on micro-economics
Micro-economics needs the help of macro-economics.For example,the sale of a firm does not depend only on the price of its product,but also on the total income of the community.If the community does not have purchasing power,the reduction in the price of a community will not increase sales.
Simplarly.the price of a good does not depend only on its demand and supply,but also on the prices of other goods.Likewise the amount of profit depends on aggregated demand,national income and price level.The rate of interest depends on the total stock of money in the economy.
Macro -economics also needs the helps of microeconomics.For example,national income and national output is the sum the income and output of millions of persons and firms.Hence,we should know the income is individual firms to know the national output.
Some theories of micro-economics have been derived from micro-economics.For example,total consumption function and total investment function are based on the behavior of individual consumers and firms respectively.
It is,thus,obvious that the study of both micro-economics and macro-economics is essential.P.A.Samuelson rightly remarks"There is really no opposition between micro and macro-economics.Both are absolutely vital.You less than half educated.If you understand the one while ignorant of the other."