Micro & Macro Economics basics

Micro means small, hence micro economics is the subject of study when the issue or problem relates to a smaller sector of the economy. The field of study is Macroeconomics, which is the study of the entire economy or aggregates relevant to the entire economy. Macroeconomics and microeconomics are two interconnected branches of economics. All microeconomic research can aid in a better understanding and analysis of macroeconomic variables, as well as in the formulation of policies and programmes.

Developing economic theories

It is not possible to investigate the economic conduct or interactions of each of the various economic agents. Each group is studied for the behaviour of some economic agents, and conclusions are derived based on this study, which is nothing more than a generalisation of that group's behaviour. These hypotheses are subsequently investigated and formalised into economic laws or theories.

There are two approaches to developing economic theories: deductive and inductive.

Deductive Methods: The following procedures are taken to formulate economic theory utilising these methods:

Steps -

Choosing a problem for analysis.

Specification of the assumptions

Using logical reasoning to deduce or formulate hypotheses

Hypotheses are tested or verified.

Inductive Methods: The following procedures are taken to formulate economic theory utilising these methods:

Steps -

Choosing a problem for analysis.

Data collection, classification, and analysis

Using logical reasoning to establish the relationship

Economic graphs

1. Graphical diagrams facilitate the analysis of two variables such as price and demand, price and supply, demand and supply, and so on.

2. Two roughly straight lines join at right angles. The intersection is referred to as the point of origin 'O,' the horizontal line is referred to as the "OX axis and represents one variable, and the vertical line is referred to as the "OY axis and represents another variable.

3. We receive one point on the graph for any given combination of two variables; similarly, each point can be read as the combination of two variables, and all such points uniting through one line create the curve.

4. If the curve slopes downward, from left to right, the two variables are inversely connected.

5. If the curve rises from left to right, it indicates that the two variables are intimately related.

6. The curve is straight if the ratio of changes in two variables is constant; convex to the origin if the ratio of changes is decreasing; and concave to the origin if the ratio of changes is increasing.