Chit-Chat Time

(After getting 1000 rupees, Raju is going with his friend, Sunny, to purchase some articles.)

Raju: Hello Sunny, how are you?

Sunny: I am fine, Raju. What about you?

Raju: I am also fine. My mom gave me 1000 rupees as a gift yesterday for my birthday.

Sunny: Oh, wow! That is great. So, have you planned where you are going to spend that money?

 Raju: Yes, I have many options. I want to purchase novels, a puzzle cube, fancy bracelets, and a Parker pen (Beta gold ). Will you come with me for shopping?

Sunny: Sure! Let’s go.

Raju: (At the Shop)

Uncle, please show me some interesting novels, Parker pens,

bracelets, and puzzle cubes.

(Shopkeeper showing Raju all the demanded items)

Sunny: Uncle, please tell me how much I have to pay for the items.

Shopkeeper: Your bill is of Rs. 1200.

(Raju is bargaining with the shopkeeper, and he finally pays 1000 rupees to the shopkeeper.)

Raju: Thank you for this discount!

(Raju is coming with his friend, Sunny, back home.)

Sunny: Have you ever wondered what amount will it be if we add all the demands by consumers in India?

Raju: Hmm. It will be a huge amount. I need to go now, see you tomorrow!

(Raju reaches home and has a conversation with his father.)

Father: Hello son, where are you coming from?

Raju: Today I went to the market to purchase some articles from the money I received on my birthday.

Father: Great! So, what did you buy?

Raju: A Parker pen, a bracelet, and two novels. The total cost of these items is Rs. 1000 after bargaining.

Father: Very nice!

Raju: If we add all the purchases (demand) made by the consumers and all the sales (supply) by the sellers in our country, it will be a huge amount. Does someone calculate that amount?

Father: Yes! When you purchased these things and that seller sold these things, this purchase and sale was made at an individual’s level and an individual firm’s level. This is a small (micro) level.

However, when we talk about purchases and sales made in the whole country, then that is at a big (macro) level. Our government collects and uses this data.

Let us understand

(1) Microeconomics and Macroeconomics

Economics is broadly divided into two parts. They are:

•       Microeconomics
•       Macroeconomics

(a) Microeconomics

Microeconomics is the study of the economic behaviour of individuals, households, and firms in decision making and allocation of resources.

Microeconomics is concerned with the following:

•       Supply and demand in individual markets (Example: Textile)
•       Individual consumer behaviour (Example: Consumer choice theory)
•       Individual producer behaviour
•       Individual labour markets (Example: Demand for labour wage determination in that individual market)

(b) Macroeconomics

Macroeconomics is the branch of economics that deals with the behaviour and performance of an economy as a whole.

It is generally the study of central issues like:

•       Employment
•       The growth rate of national output
•       GDP
•       Inflation
•       General price level and stability

(2) Vital components of microeconomics

   (a) Theory of consumer behaviour

This theory states that a rational consumer allocates his income for the purchase of different goods and services with the aim to maximise his satisfaction.

   (b) Theory of producer behaviour

This theory states that a rational producer has to decide what and how much to produce with the aim of profit maximisation.

   (c) Theory of price

This is the theory that tells us how prices are determined in the market.

Also read: Difference between Microeconomics and Macroeconomics

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