Q: What should be the subject matter of economics? Is microeconomics complementary to macroeconomics?

Subject matter of economics: Economics has its own subject matter. Economics studies only that part of human behavior which is related to the allocation of scarce resources in relation to unlimited wants. The growth in subject matter of economics has led to divergent view .In the beginning it was confined to science of wealth. But with the change in the social condition, the neo- classical economists like Marshall emphasizes economics to be a science of welfare. Robbins and other modern economists shifted the study of human behavior, as science of choice. Subject matter of Economics Traditional approach
1. Production 2. Consumption

Modern approach 1. Micro economics 2. Macroeconomics

3. Exchange 4. Distribution Traditional approach- according to traditional approach, the subject matter of economics can be divided into four major parts viz. consumption, production, exchange, and distribution. Consumption is the beginning and ending of the economics. The process of consumption involves the utilization of utility of goods or service for the satisfaction of human wants. Here we study the various laws of consumption e.g. Law of Diminishing Marginal utility, Law of Equi-marginal utility. Production is the result of consumption or demand. In modern time, production are studies e.g. Land, Labors, Capital, organization and entrepreneur. Here various laws related to production are studied e.g. Law of variable proportion, Law of return to scale, etc.

Due to multiplicity of wants no one can produce all that ones consumption. Thus, to fulfill all ones wants, exchange becomes necessary. In exchange various types of market situation are studies. For the production, the factors of production are used. Hence these should be paid according to their services. The laws of governing the price factor of production are studied in distributions. Modern approach Traditional approach of subject matter of economics is only one sided, i.e. related to price theory. Modern approach treats the subject matter of economics to be not only the study of price theory but also the study of the economy. Thus modern approach studies both the price theory i.e. microeconomics and the economy i.e. macroeconomics. Microeconomics studies the studies the economic action of individual, i.e. a particular firm, individual household, wages, interest, profits, , etc. thus microeconomics is in fact a microscopic study of the economy . It studies the working of market for individual commodities, the behaviors of consumers and producers. In recent years, more emphasis has been given to the study of the economy as a whole, i.e. macroeconomics which studies the aggregate or averages covering the entire economy, such as total savings, total consumption, aggregate demand, aggregate supply, national income and so on. Macroeconomics studies the determinants of full employment. It is concern more with the problems of unemployment, economics fluctuation, economic growth etc. Is microeconomics complementary to macroeconomics? "Microeconomics is the study of specific individual units; particular firms, particular households, individual prices, wages, individual industries particular commodities. The microeconomic theory or price theory thus is the study of individual parts of the economy". In the words of Left witch: Microeconomic theory or price theory deals with the economic behavior of individual decision making units such as consumers, resources owners, business firms as well as individuals who are too small to have an impact on the national economy".

Importance Before Keynesian revolution, the body of economics mainly consisted of micro economics. The classical economics as well as the neo-classical economics belonged to the domain of Microeconomics. The importance and uses of micro economics in brief are as under. (i) Helpful in understanding the working of private enterprise economy. The micro economics helps us to understand the working of free market economy. It tells us as to how the prices of the products and the factors of (ii) Helps in knowing the conditions of efficiency. Micro economics help in explaining the conditions of efficiency in consumption, production and in distribution of the rewards of factors of production. (iii) Working economy without central control. The micro economics reveals how a free enterprise economy functions without any central control. (iv) Study of welfare economy. Micro economic involves the study of welfare economics.
Macroeconomics: "Macroeconomics deals with total or big aggregates such as national income, output and employment, total consumption, aggregate saving and aggregate investment and the general level of prices"

. In the words of Boulding: Macroeconomics deals not with individual quantities as such but with aggregates of these quantities, not with individual i.e., but with the national Income, not with individual prices but with the price level, not with Individual outputs but with the national output. It studies determination of national output and its growth overtime. It also studies the problems of recession, unemployment inflation, the balance of international payments and the policies adopted by the governments to deal with these problems". Importance The main issues which are addressed in macro economics are in brief as under: (i) It helps understanding determination of income and employment. Late J.M. Keynes laid great stress on macro-economic analysis. In his

revolutionary book, General Theory, Employment interest and Money" brought drastic changes in economic thinking. He explained the forces or factors which determine the level of aggregate employment and output in the economy. (ii) Determination of general level of prices. Macro economic analysis answers questions as to how the general price level is determined and what is the importance of various factors which influence general price level. (iii) Economic growth. The macro-economic models help us to formulate economic policies for achieving long run economic growth with stability. The new developed growth theories explain the causes of poverty in under developed countries and suggest remedies to overcome them. (iv) International trade. Another important subject of macro-economics is to analyze the various aspects of international trade in goods, services and balance of payment problems, the effect of exchange rate on balance of payment etc. (v) Unemployment. Another macro economic issue is to explain the causes of unemployment in the economy. Stagflation is another important issue of modern, economics. The Keynesian and post Keynesian economists are putting lot of efforts in explaining the causes of cyclical unemployment and high unemployment coupled with inflation and suggesting remedies to counteract them. (vi) Global Economic System. In macro economic analysis, it is emphasized that a nations economy is a part of a global economic system. A good or weak performance of a nations economy can affect the performance of the world economy as a whole. Actually microeconomics and macroeconomics are interdependent . the theory regarding the behaviour of some macroeconomics aggregates (but not all)are derived from theories of individual behaviour. For instance , theory of investment , which is a part and parcel of the microeconomic theory , is derived from the behaviour of individual entrepreneur . according to this theory , an individual entrepreneur in his investment activity is governed by

the expected rate of profit on the one hand and rate of interest on the other . similarly , the theory of aggregate consupyion function is based upon the behaviour patterns of individual consumers.