Note on Micro & Macro and Positive & Normative Economics

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Micro & Macro Economics

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(Source: www.slideshare.net)

In ancient period, whole economics theories (i.e micro and macroeconomic theories) were studied as single economics. But modern economists have divided the whole economic theories into two parts - Microeconomics and Macroeconomics. These two words were first used by Ragnar Frisch in 1933. Since then, the whole economics analysis is carried dividing it into two parts. But after the publication of John Maynard Keynes "General Theory" in 1936, the use of macroeconomics has widened.

Micro Economics

The prefix 'Micro" of microeconomics has been derived from the greek word "Mikros" which means small. Microeconomics studies the economics activities and behaviour of small individual units of the economy. It means microeconomics can be defined as the study and analysis of the behaviour of individual economic units. For example: Microeconomic studies about the behaviour of an individual consumer, one producer, a firm, a household, one industry and so on. It means microeconomics makes the microscopic study of small individual units. In particular, microeconomics focuses on patterns of supply and demand and the determination of price and output in individual markets (e.g. coffee industry).

According to K.E. Boulding, "Microeconomics is the study of a particular firm, household, individual price, wages, income, individual industry and particular commodity".

Thus, microeconomics seeks to explain how an individual consumer distributes his disposal income among various goods and service, how he attains the level of maximum satisfaction, and how he reaches the point of equilibrium. Microeconomics also concern about how an individual firm decides, what to produce, how to produce, and at what cost to produce, to maximize the profit.

Macro Economics

Macro is the word derived from the greek word ''makro'' which means "large". Macroeconomics is a branch of economics dealing with the performance, structure, behavior and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies. It is concerned with nature, relationship and behaviour of such aggregate quantities and averages as national income, total consumption, savings, investment, total employment, general price level aggregate expenditure and aggregate supply of goods and services.

According to K.E. Boulding, "Macroeconomics is the study of the nature, relationship and behaviour of aggregate and averages of economic quantities."

Macroeconomics is the field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income, the rate of growth, gross domestic product, inflation and price level. Macroeconomics is the study of the whole jungle, not a single tree.

Positive & Normative Economics

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Positive Economics

Positive Economics is the methodology of economic analysis which can be broadly classified into two categories. One attempts to describe the real condition and the other looks at the outcome of the activity and gives value judgement. The one which describes the condition or what is happening without giving value judgement is called positive economics. But, the study of the final output and determining they are good or bad is called normative science.

A positive economics studies the things as they are found in reality rather than they actually should be. The concept of positive economics was introduced by classical economists Adam Smith, Jean Baptiste Say, David Ricardo and modern economists Lionel Robbins. Positive economics can be defined as the body of systematic knowledge related to what is, what was, or what will be. It tries to give the answer to these questions. It means positive economics explains the economic phenomenon as it is.

Economics is the positive science because it explains cause and effect relationship between or among the economics issues or problems. It does not give the value judgement. For example- Other thing remaining the same, quantity demanded for a product decreases with increase in price and vice versa. In this example, an increase in the price of the product is cause and decrease in quantity demanded is an effect. Adam smith said that "Economics is that science which studies about wealth". Likewise, Robbins said that there are unlimited human wants but the resources to satisfy them are limited.

Positive economics defines and explain the economic activities as it is. It simply tries to explain the real situation i.e. what is happening without any comment or value judgement. Positive economics says that a rational consumer tries to maximize his/her satisfaction with limited amount of income , which is a reality. But it does not give any value judgement on it.

Normative Economics

A normative science is that which studies the things 'as they should be'. Instead of asking 'what is' the question asked in normative economics is 'what should be ' or 'what ought to be'. The economics which uses value judgement is called normative economics.

The concept of normative economics was introduced by neo-classical economists such as Alfred Marshall, AC Pigou, etc. Normative economics is defined as a body of systematic knowledge related to 'what ought to be' or 'what must be '. It never tries to make a detailed study on the cause and effect of any economic issue or problem. In normative economics, it uses value judgement. It means the normative economics give the value judgement depending upon the findings of the positive economics. It does not describe the economic activities as it is but gives the suggestion. A normative science is that which studies the things 'as they should be'. Instead of asking 'what is' the question asked in normative economics is 'what should be ' or 'what ought to be'. The economics which uses value judgement is called normative economics.

It is already mentioned that the concept of normative economics was introduced by Alfred Marshall and other neo-classical economists. Alfred Marshall said that the wealth should be utilized for the material welfare of the people. Positive economics plays very important role in normative economics. Depending upon the finding of positive economics, Normative economics gives suggestion or value judgement on it.

Differences between Positive economics and Normative economics

The major differences between positive economics and normative economics are listed below:

Positive Economics Normative economics

1. It inquires what is, what was or what will be?

2. It explains cause and effect relationship between the economics issues.

3. Makes some assumptions while making an analysis.

4. Its results are widely applicable.

5. Positive economics was supported and led by classical and modern economists.

1. It inquires what ought to be?

2. It makes a decision on any economics issues without analysis.

3. It does not make any assumption while carrying out economic analysis.

4. Its results is applied to specified issues.

5. Normative economics was supported and led by neo-classical economists.

Reference:

Adhikari, Ramesh Prasad, Economics-XI, Asmita Pustak Prakashan, Kathmandu

Kanel, Navaraj et.al., Principles of Economics-XI, Buddha Prakashan, Kathmandu

Kharel, Khom Raj et.al., Economics In English Medium)-XI, Sukunda Pustak Bhawan, Kathmandu

  1. Modern economists have divided the whole economic theories into two parts - Microeconomics and Macroeconomics.
  2. Microeconomics studies about individual units of an economy.
  3. Macroeconomics studies about the aggregate system of an economy.
  4. Positive economics studies the economic phenomenon as it is without giving any value judgement.
  5. Normative economics gives value judgement on different economic issues depending on the finding of positive economics.
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