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Economics > Economics (Micro and Macro) > Flashcards

Economics (Micro and Macro) Flashcards

1
Q

What are the three approaches to the subject matter of economics based on its definitions?

A

Classical: Focus on wealth accumulation.
Neo-Classical: Focus on material welfare.
Modern: Focus on choices in scarcity.

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2
Q

What are the main branches of the modern approach to economics?

A

Microeconomics: Studies individual choices and market impacts.
Macroeconomics: Focuses on overall economic issues like inflation and growth.

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3
Q

Name five types of economic activities.

A

Production
Consumption
Exchange
Distribution
Public Finance

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4
Q

Differentiate between economic and non-economic activities.

A

Economic Activities: Actions aimed at earning money.
Non-Economic Activities: Actions done for personal satisfaction or love.

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5
Q

What is the difference between factor income and transfer income?

A

Factor Income: Earnings from providing factors of production (included in national income).
Transfer Income: Income not related to production (not included in national income).

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6
Q

What is microeconomics?

A

Microeconomics studies individual economic units, aiming for efficient resource allocation and analyzing price determination under different market structures.

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7
Q

What are the three types of microeconomics?

A

Micro Static: Studies a specific point in time.
Comparative Micro Static: Compares different static conditions.
Micro Dynamic: Examines changes over time.

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8
Q

Scope/ Subject matter of microeconomics

A
  • Consumer Behavior: Analyzes utility maximization.
  • Producer Behavior: Focuses on profit maximization.
  • Cost and Revenue Theory: Studies cost minimization and revenue maximization.
  • Product Pricing: Examines pricing methods under different market conditions.
  • Factor Pricing: Explains factor price determination across market structures.
  • Economic Welfare: Evaluates resource utilization for maximizing total welfare.
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9
Q

Importance of Micro

A
  • Enhances understanding of economic functioning.
  • Promotes optimum resource use.
  • Determines product and factor prices across markets.
  • Aids in formulating economic policies (e.g., tax, subsidy).
  • Assists government in price management.
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10
Q

Limitations of micro

A
  • Unrealistic Assumptions: Often oversimplifies economic behavior.
  • Ignores Government Role: Does not account for government interventions.
  • Neglects Macroeconomic Factors: Fails to consider broader economic influences (e.g., inflation, unemployment).
  • Overlooks Behavioral Aspects: Ignores irrational behaviors and emotional factors.
  • Focus on Efficiency Over Equity: May not address issues like income inequality adequately.
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11
Q

Concept of macro

A

Macroeconomics studies the overall functioning of an economy.

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12
Q

Macroeconomics developed by…

A

J.M. Keynes during the Great Depression of the 1930s.

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13
Q

Goal of macro

A

Aims to calculate macroeconomic variables and suggest policies for growth and stability.

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14
Q

Macro subject matter

A
  • National income concepts.
  • Theories and causes of inflation and deflation.
  • Factors affecting money demand and supply.
  • Economic growth models.
  • Theories of international trade.
  • National output and income equilibrium.
  • Employment and unemployment theories.
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15
Q

Macro Importance

A
  • Provides insights into the economy as a whole.
  • Informs about macroeconomic conditions.
  • Aids in policy formulation and effectiveness analysis.
  • Identifies socio-economic problems and solutions.
  • Facilitates international comparisons.
  • Supports business decision-making.
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16
Q

Macro Limitations

A
  • Aggregates data can obscure sectoral variations, leading to inaccurate conclusions.
  • Models often rely on unrealistic assumptions (e.g., constant inflation).
  • Policies may have time lags in effects, reducing immediate efficacy.
  • Measurement limitations can distort the economic picture (e.g., informal sector).
  • Balancing inflation and unemployment can be challenging (Phillips Curve).
  • Often overlooks individual and sector-specific impacts of policies.
  • Ignores externalities.
  • Assumes a homogeneous economy.
17
Q

Similarities between macro and micro

A
  1. Study of Economic Behavior:
  2. Theoretical Models: Employ models to explain phenomena and guide policies.
  3. Focus on Efficiency: Aim to understand efficient resource use.
  4. Policy Implications: Policies derived from both theories affect taxation, regulations, and spending.
  5. Objective of Improving Welfare: Seek to enhance economic welfare and satisfaction.
  6. Importance of Prices: Prices are critical, with micro focusing on market prices and macro on overall price levels.
  7. Use of Quantitative Methods: Utilize statistics and econometrics for analysis and forecasting.
  8. Optimum use of resources
  9. Based on Assumptions
18
Q

Differences between Micro and Macro

A
  • Meaning: Microeconomics focuses on individual units; macroeconomics looks at the economy as a whole.
  • Objective: Micro aims for efficient resource allocation; macro seeks to assess overall economic conditions.
  • Focus: Micro studies small entities; macro examines the entire economy.
  • Also Known As: Micro is partial equilibrium analysis; macro is general equilibrium analysis.
  • Policy Focus: Micro deals with tax/subsidy policies; macro handles monetary and foreign exchange policies.
  • Time Horizon:
    • Micro: Short-term decisions.
    • Macro: Long-term trends.

-Government role ignorance
-International Comaprison possibility

19
Q

Interrelation between micro and macro

A

-Interest Rates: Set by macro policies, affecting micro borrowing and investment.
-Inflation and Price Levels: Influences micro pricing strategies.
- Economic Growth: Overall growth influences micro-level investment.
-National income is sum total of individual income
-Aggregate demand is sum total of individual demand sin different markets
-Micro decisions regarding saving and investments impact macroeconomic variables.
-Overall employment level determined by employment opportunities in individual firms.

20
Q

Superior Definition of Microeconomics

A

Paul A. Samuelson defined microeconomics as: “The study of how households and firms make decisions and how they interact in specific markets.”
encapsulates the core aspect of microeconomics—focusing on individual decision-makers and their interactions within markets.

21
Q

Superior Definition of Macroeconomics

A

John Maynard Keynes defined macroeconomics as: “The study of national income, overall employment, aggregate demand, and aggregate supply to understand the broader economic performance of a country.”

22
Q

Superior Definition of Economics

A
  • Lionel Robbins definition: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
23
Q

Concept of Economics

A

Social science studying activities and decisions of economic participants related to production, consumption, exchange, distribution and public finance. Focuses on optimum utilisation of scarce resources

Economics (3 decks)

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