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Microeconomics and macroeconomics

1. Many economists specialize in a particular branch of the subject. Forexample, there are labour economists, energy economists, monetary economists, and international economists. What distinguishes these economists is the segment of economic life in which they are interested. Labour economics deals with problems of the labour market as viewed by firms, workers and society as a whole. Urban economics deals with city problems: land use, transport, congestion, and housing. However, we need not classifying branches of economics according to the area of economic life in which we ask the standard questions what, how, and for whom. We can also classify branches of economics according to the approach or methodology that is used. The very broad division of approaches into microeconomics and macroeconomics cuts across the large number of subject groupings cited above.

2.Microeconomic analysis offers a detailed treatment of individual decisions about particular commodities.

For example,we might study why individual households prefer cars to bicycles and how producers decide whether to produce cars or bicycles. We can then aggregate the behavior of all households and all firms to discuss total car purchases and tolal car production. Within a market economy we can discuss the market for cars. Comparing this with the market for bicycles – we may be able to explain the relative price of cars and bicycles and the relative output of these two goods. The sophisticated branch of microeconomics known as general equilibrium theory extends this approach to its logical conclusion. It studies simultaneouslyevery market for every commodity. From this it is hoped that we can understand the complete pattern of consumption, production, and exchange in the whole economy at a point in time.

3. If you think this sounds very complicated you are correct. For many purposes, the analysis becomes so complicated that we tend to lose track of the phenomena in which we were interested. The interesting task for economics, a task that retains an element of art in economic science, is to devise judicious simplifications which keep the analysis manageable without distorting reality too much.

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