Reading what is microeconomics and macroeconomics.

MICROECONOMICS AND MACROECONOMICS

DISCUSSION 1. What does macroeconomics deal with?

2. What does microeconomics study?

3. What is the difference between macroeconomics and microeconomics?

Many economists specialize in a particular branch of the subject. For example, 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 to classify 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 microeconomic and macroeconomic cuts across the large number of subject groupings cited above.

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 behaviour of all households and all firms to dis­cuss total car purchases and total car production. Within a market eco-

PART I. ECONOMICS

nomy we can discuss the market for cars. Comparing this with the market for bicycles, we may be able to explain 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 simultaneously every 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.

If you think this sounds very complicated you are correct. It is. 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. It is here that microeconomists and macroeconomists proceed down different avenues.

Microeconomists tend to offer a detailed treatment of one aspect of economic behaviour, but ignore interactions with the rest of the economy in order to preserve the simplicity of the analysis. A microeconomic analy­sis of miners' wages would emphasize the characteristics of miners and the ability of mine owners to pay. It would largely neglect the chain of indirect effects to which a rise in miners' wages might give rise. For example, car workers might use the precedent of the miners' pay increase to secure higher wages in the car industry, thus being able to afford larger houses, which burned more coal in heating systems. When microeconomic analysis ignores such indirectly induced effects it is said to be partial analysis.

In some instances, indirect effects may not be too important and it will make sense for economists to devote their effort to very detailed analyses of particular industries or activities. In other circumstances, the indirect effects are too important to be swept under the carpet and an alternative simplification must be found.

Macroeconomics emphasizes the interactions in the economy as a whole. It deliberately simplifies the individual building blocks of the analy­sis in order to retain a manageable analysis of the complete interaction of the economy.

For example, macroeconomists typically do not worry about the break­down of consumer goods into cars, bicycles, televisions, and calculators. They prefer to treat them all as a single bundle called "consumer goods" because they are more interested in studying the interaction between households' purchases of consumer goods and firms' decisions about pur­chases of machinery and buildings

detailed treatment- детальний аналіз to aggregate, v- збирати в єдине ціле aggregate, n - сукупність relative output- відносний обсяг виробництва general equilibrium theory- теорія загальної рівноваги complete pattern- повна структура (схема), система to lose track- загубити слід

• C CABULARY labour economist - спеціаліст з

NOTES економіки праці

energy economist - спеціаліст з

економіки (електро)енергетики

monetary economist - спеціаліст з

монетарної економіки

international economist - спеціаліст зі

світової економіки

congestion - перенаселення

to cut across - не відповідати

IT:. MICROECONOMICS AND MACROECONOMICS

to devise judicious simplifications -

розробити доцільні спрощення

to keep the analysis manageable -

дозволити проводити аналіз

to distort reality - викривлювати

реальність

to preserve the simplicity - зберігати

простоту

to neglect the chain of indirect effects -

нехтувати сукупністю непрямих ефектів

to secure higher wages - одержувати

вищу заробітну плату

indirectly induced effects - дія, викликана

непрямими причинами

partial analysis - частковий (неповний) аналіз

to sweep under the carpet - маскувати, ховати

to simplify deliberately - умисно спрощувати

to retain a manageable analysis - зберіга­ти можливість аналізу the breakdown of consumer goods -класифікація товарів споживання a single bundle - окрема одиниця, величина

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