Summary
Economics is divided into Microeconomics, which studies individual economic units like households and firms, and Macroeconomics, which examines the economy as a whole, including aggregates like inflation, unemployment, and national income. Microeconomics uses a slicing method, focusing on price theory and individual behavior. Macroeconomics uses a lumping method, focusing on income theory and aggregate variables. Both branches are interdependent and crucial for understanding the complexities of economic systems.
Must Know Points
- Microeconomics is the study of individual economic units.
- Macroeconomics is the study of the economy as a whole.
- Adam Smith is considered the founder of Microeconomics.
- John Maynard Keynes is considered the founder of Macroeconomics.
- Microeconomics uses a partial equilibrium analysis.
- Macroeconomics uses a general equilibrium analysis.
- Price theory is a key component of Microeconomics.
- Income and employment theory are key components of Macroeconomics.