Taking Economics to next level

In my last post we had discussed about the meaning of the economics. This post will take it up to its next level, where we make the readers introduce to the two broad divisions of economics. Microeconomics and Macroeconomics.

ICICI Banks net profit for current quarter increased by 40% , Production runs at Tata motors plant to get reduced in the coming year , Indian steel industry aims to boost investment in new plants in the current year. All these statements mentioned either talks about one company or one Industry in relation to company or industry product prices, cost, production or investment.  Broadly Microeconomics is the study of individual behaviour of company, industries or consumers in terms of their interaction with each other in market. Micro conics is concerned with how decrease in price of Maggie or LG television discount sales will affect the buying behaviour of consumer and how competitors will react to this decrease in price of Maggie or LG television sets .

India Gross domestic product forecasted to be 8% for the next financial year. To tame the on-going inflation RBI has hiked the interest rate from 50 basis points, Aggregate production level has shown consistent decrease in the third quarter of 2010. All the above statements have one thing in common i.e aggregate level of prices , aggregate interest rates , aggregate production, which represents the economy as a whole rather than a consumer , company or industry. A study of aggregates is called as Macroeconomics. For eg. Comparison of  GDP of GDP of emerging economies like China and India is macroeconomics.

In recent years the dimension between microeconomics and macroeconomics have reduced to great extent . For e.g taking the example of GDP comparison of China and India , before we can the compare the GDP of two countries, the prerequisites to  these is understanding of firms , consumers , workers and investors of these countries. Macroeconomist are nowadays concerned with microeconomic foundation of aggregate macroeconomic phenomenon. Therefore a manger who needs to decide on the price of the new small car manufactured by his company needs into take consideration the study of his company , automobile industry , consumer behaviour , competitor pricing as well as aggregate income and income of the population of the country as a whole. Therefore both microeconomics and macroeconomics become essential to set up the pricing strategy of the company