Differences Between Micro And Macro Economics Economics Essay

Differences Between Micro And Macro Economics Economics EssayEach NCC Education assessed assignment submitted by you must sop up this fixment attached to the assignment as the cover page or it impart not be accepted for marking. Please ensure that this statement is either firmly attached to the cover of the assignment or electronic entirelyy inserted into the front of the assignment.Student declarationI live with read and understood NCC Educations Policy on Academic Dishonesty and Plagiarism.I can confirm the following detailsStudent ID/Registration number 4-16-03-09-010Name Mahabuba RahmanCentre Name Daffodil install of ITModule Name EconomicsModule Leader Mr. Abdullah-Hil-MuntakimNumber of wordsI confirm that this is my own work and that I have not plagiaristic any part of it. I have besides noted the assessment criteria and pass mark for assignments.Due Date 18th February, 2010Students Signature Mahabuba RahmanDate of complaisance 17th February, 2010AcknowledgementAt last , an arduous journey has come to an end. It was a great experience to make an assignment on frugals. For the successful completion of the diametrical argonas in the process of writing the assignment, many volume extended their helping hands and their practical thoughts as well. Without all those helps from different fields, it would not be realizable to ease the entire process and make smooth works. In the first place, I want to express my heartiest gratitude to our respected teacher and mentor, Mr. Abdullah-Hil-Muntakim, for guiding us with necessity advices, whenever needed. This assignment is assigned by NCC Education UK. I would also like to thank NCC Education UK for providing me such an enjoyable assignment like this.Mahabuba RahmanTable of limitTask1. 01 to 05Task2. 06 to 14Task3. 15 to 17Task4. 18 to 21Task5. 22 to 24References Bibliography . 25Task-1What is Economics?The Economists Dictionary of Economics defines political economy asThe study of the convergenceion, scattering and consumption of wealth in military man society.Another definition of the subject comes from the economist Lionel Robbins, who said in 1935 that1Economics is a social science that studies human behavior as a relationship in the midst of ends and scarce means which have alternative uses. That is, economics is the study of the trade-offs involved when choosing amongst alternate sets of decisions. tally to Adam Smith, Economics is a study of an enquiry into the nature and causes of wealth of nations.J. S. Mills says, Economics is a study of the practical science of the output signal and dissemination of wealthGenerally, Economics is a study of how people allocate their limited resources such as land, labor and capital to provide for their unlimited wants.2The basic economic problem is about scarcity and choice since t here(predicate) are only a limited amount of resources operable to produce the unlimited amount of goods and work we desire.In an economy, people h ave unlimited desire for goods and services i.e. unlimited wants, just the resources in the world are limited and so we cannot satisfy all our wants and are forced to choose as to which goods to produce.Therefore, scarcity and choice or limited resources and unlimited wants sum up the basic economic problem.We can summarize this idea into the following figure3Limited ResourcesCan be used to produceLimited amount of goods services.Which then satisfyUnlimited amount of people wantsFIG Limited Resources and Unlimited wantsAs we are faced with the problem of scarcity, in that respect are 3 important economic decisions to be considered.What goods and services to be produced and what bar i.e. how much to be produced?How or by what method goods and services should be produced?For who are goods and services to be produced i.e. who are to enjoy the goods and services produced? prospect constituteOpportunity represent is the cost we pay when we give up something to stay put something else. There can be many alternatives that we give up to get something else, but the opportunity cost of a decision is the most desirable alternative we give up to get what we want4.Opportunity cost of significant a want is the next best alternative that has to be forgone (i.e. the cost of giving up something in order to obtain something else).As for example, a soul has $5 and he can spend on chocolate or grate gum or a combination of both.Price of a rampart of chocolate = $0.50Price of a exclude of chewing gum =$0.20 icon 1 Opportunity CostThere are 6 attainable combinations available to him using all his money. Assuming that he is consuming 6 bars of chocolate and 10 bars of chewing gum, the opportunity cost of the 8th bar of chocolate is what he must give up in order to get that 8th bar, which in this case is 5 bars of chewing gum.The describe on the above diagram shows a constant opportunity cost of consuming 2 additional bars of chocolate is 5 bars of chewing gum.Opportun ity Cost is represented by the slope of that line.5In simple terms, opportunity cost of an work on A is the next best alternative action B that you give up. For example, if you spend one hour in reading then you are actually giving up one hour of sportfishing which is say, your next best alternative use of that one hour.6Reading for an hour means giving upSo opportunity cost of reading is fishing.Differences between Micro and Macro EconomicsMacro- and microeconomics, and their wide array of underlying concepts,have been the subject of a great deal of writings. The field of study is vast here is a brief summary of what each coversa).Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and expenditures of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomicsfocuses on go forth and pauperism and other forces that determine the monetary value levels seen in the eco nomy. For example, microeconomics would look at how a specific company could maximize its production and capacity soit could set about equipment casualtys and better compete in its industry.7On the other hand,Macroeconomics is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such asGross National Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and value levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nationscapital account or how GDP would be affected by unemployment rate.b)Microeconomics deals with the economics of the firm, examples are Consumers Behavior and Production Theory.8Macroeconomics deals with the aggregates, examples are National Income Accounts and Inflation.c)Microeconomics ( scurvy economics), which examines the economic beha vior of agents (including individuals and firms) Microeconomics looks at interactions through individual commercializes, disposed scarcity and government regulation. A given commercialise might be for a product, say fresh corn, or the services of a factor of production. The speculation considers aggregates of measuring rod withdrawed by buyers and quantity supplied by mete outers at each possible price per unit. It weaves these together to describe how the market may reach sense of balance as to price and quantity or respond to market changes over time.9Macroeconomics (big economics), addressing issues of unemployment, inflation, monetary and fiscal policy for an entire economy. Macroeconomics examines the economy as a whole to explain broad aggregates and their interactions top down, that is, using a simplified put to work of general- symmetry theory. Such aggregates include national income and output, the unemployment rate, and price inflation and sub aggregates like tota l consumption and investment spending and their components. It also studies effects of monetary policy and fiscal policy.TASK-02 take away CurveIn economics, the contract twist is the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are departing and able to purchase at that given price. It is a graphic representation of a demand schedule.10The demand curve is a graphical representation of the data in the demand schedule. It slopes downwards from left to right indicating that the quantity demanded increases as the price falls.11The table under is the demand schedule that lists the quantity of a commodity that would be demanded at various price levels with a given income. It shows the relationship between quantity, demanded and price.PriceQuantity Demanded500401302203104QuantityPrice5040302010Fig Individual demand curve1 2 3 4 5Demand curves are used to estimate behaviors in agonistical markets, and are a great deal combined with fork out curves to estimate the equilibrium price (the price at which sellers together are willing to sell the similar amount as buyers together are willing to buy, also known as market clearing price) and the equilibrium quantity (the amount of that good or service that will be produced and bought without surplus/ redundancy supply or shortage/excess demand) of that marketAn example of a demand curveIn the diagram, the line labeled D shows a plot of that demand curve, say for blue jean prices and number of pairs demanded. Prices are P (in $) and quantity is Q (in number of product units) on this diagram. At a price of $75 (vertical bloc), two pairs are demanded (Q on level axis). As the price P on vertical axis is lowered from $75 to $50, the quantity demanded Q is increased from two pairs to three pairs of blue jeans.12Market Demand Curve13The market demand curve is the curve tie in to the demand of the commodity demanded by the group of people to that different price.How a market demand curve is derivedThe market demand curve is the horizontal aggregate of individual demand curves. Individual demand is the key initiator of the production process. It is independent of all factors other than the preference curve, prices and income constraint. The law of demand lower the price, greater amount demanded, i.e. demand curve is negatively slopedFig Market Demand CurveMarket Demand Schedule and Curve14Market demand is the total demand of all the consumers for particular goods. It can also be derived by the lateral summation of the consumers demand curves.Price($)Market Demandedbuyer ABuyer B8002270033600445015640268303710204812105914The following demand curve is drawn on the basis of the data for buyer A, given in the above table.P80 070605040302010 50 1 2 3 4 5 6 QFig As Demand CurveThe following demand curve is drawn on the basis of the data for buyer B, given in the above table. In this graph the price value are set up in the X-axis and the qu antity values are set up along Y-axis.P28070605040302010 90 1 2 3 4 5 6 7 8 9 QFig Bs Demand CurveFollowing is the Fig. of a market Demand Curve15P80 (0+2) =270605040302010 (5+9) =140 1 2 3 4 5 6 7 8 9 10 12 14 QFig Market Demand CurveThe market demand curve is a graph drawn by the combination of the above demand curves. The market demand value is calculated from the demand of buyer A and buyer B. The market demand values are aggregated values for the values of buyer A and buyer B. We have calculated the values in the above table.In this graph the price values are set up along X-axis and the quantity values are set up along Y-axis.A Firms Output Decision in the short-runThe short run is a period of time for which two conditions holdThe firm is operational under a fixed scale (fixed factor) of production, andFirms can neither enter nor date an industry.In the short run, all firms have be that they must nominate regardless of their output. These kinds of costs are called fixed cos ts.Costs in the Short Run16Fixed cost is any cost that does not depend on the firms level of output. These costs are incurred even if the firm is producing nothing.Variable cost is a cost that depends on the level of production chosen.TC= TFC+ TVCTotal Cost = Total Fixed Cost + Total Variable Cost.2501,00042001,00053331,0003(2)TFC(3)AFC (TFC/q)5001,00021,0001,0001$ 0(1)qAFC falls as output rises a phenomenon sometimes called spreading overhead17In the above figure, when the firms production is 0 it has to occur $1000 as a fixed cost. And at the production level of 3 or 5 units, the firm has to occur the same amount of fixed cost. So with increase in the number of production units the average fixed cost is reduced.Output DecisionsIn the short run, a competitive firm faces a demand curve that is simply a horizontal line at the market equilibrium price.18A Firms Output Decision in the long-runFirms expand in the long-run when increasing returns to scale are available.19Output Decisions In a decreasing cost industry, costs decline as a result of industry expansion, and the LRIS is downward-sloping.20In an increasing cost industry, costs rise as a result of industry expansion, and the LRIS is upward-sloping.21TASK-3How an equilibrium price and equilibriumquantity is achieved?We often show the market equilibrium through a supply and demand diagram shown below. This figure is a combination of the supply curve and the demand curve. Combining two graphs is possible because they are drawn with just the same units on each axis.We find the market equilibrium by looking for the price at which quantity demanded equals quantity supplied. The market equilibrium price comes at the intersection of the supply and demand curve, at the intersecting point. At a particular price, at the intersecting point, firms willingly supply what consumers willingly demanded. When the price is too low, less the price of the intersecting point, quantity demanded exceeds quantity supplied.22Figure 1 Market Equilibrium Comes at the Intersection of Supply and Demand CurvesA competitive market is in equilibrium if, at the current market price, the number of units that consumers wish to buy equals the number of units producers wished to sell. In other words, market equilibrium occurs where quantity demanded equals quantity supplied. At the equilibrium price, P*, the equilibrium quantity is Qd=Qs=Q*, where Qd is the quantity demanded and Qs is the quantity supplied. The asterisk indicates equilibrium.In a competitive market, this equilibrium is demonstrate at the intersection of the supply and demand curves. There are no storage or surpluses at the equilibrium price.The effects of excess supply on market equilibriumMarket equilibrium is the situation, where at a certain price level, the quantity supplied and the quantity demanded of a particular commodity are equal. Thus, the market can clear, with no excess supply or demand, and there is no tendency to change in either price or quantity.The equilibrium price and quantity will be changed if there is a shift in either or both of the supply or demand curve. Shifts in the supply and demand curves are caused by changes in conditions behind supply and demand not price changes.An increase or decrease in supply will also affect the equilibrium position. An increase in supply shifts the supply curve to the right, thus lowering equilibrium price while raising equilibrium quantity. A decrease in supply, which shifts the supply curve to the left, however, raises equilibrium price and lowers equilibrium quantity.In Figure 2, the quantity supplied at price 0P1 (0Q2) exceeds the quantity demanded. Thus, we have a situation of excess supply or a glut in the market. In order to remove excess supply, sellers will offer to sell at a lower price. The fall in the price results in an expansion of demand, and a contraction in supply (movement along the curves towards the equilibrium point). This will continue to occur as long a s there is excess supply, until we reach the intersection of supply and demand, where at price 0Pe, the market clears, that is, the quantity supplied and demanded is equal.23Figure 1 Excess supply situationThe effects of excessdemand on market equilibriumDiagrammatically, market equilibrium occurs where the demand and supply curves intersect, at the point where the quantity demanded is exactly equal to the quantity demanded. Let us first consider the case where there is excess demand, where the current price is below that of equilibrium, as shown in Figure 224Figure 2 Excess demand situationFigure 2 reveals that at price 0P1, the quantity demanded (0Q2) exceeds the quantity supplied (0Q1). Competition among buyers for the limited quantity of goods available means that consumers will start bidding up the price. The rise in the price results in an expansion in supply and a contraction in demand (movement along the curves towards the equilibrium point). This will continue to occur as l ong as there is excess demand. Eventually, we will reach the intersection of the supply and demand curves, where at price 0Pe, the quantity supplied 0Qe exactly equals the quantity demanded by consumers.In conclusion, the market forces of supply and demand interact to bring about the equilibrium price, clearing the market of excess demand or supply. In this way, it is said that the market mechanism achieves consistency between the plans and outcomes for consumers and producers without explicit coordination.Task-4Perfect CompetitionIn neoclassical economics and microeconomics, perfect competition describes a market in which there are many small firms, all producing homogeneous goods. In the short term, such markets are productively inefficient as output will not occur where bare(a) cost is equal to average cost, but allocatively efficient, as output under perfect competition will always occur where marginal cost is equal to marginal revenue, and wherefore where marginal cost equals average revenue. However, in the long term, such markets are both allocatively and productively efficient. In general a perfectly competitive market is characterized by the fact that no single firm has influence over the price of the product it sells. Because the conditions for perfect competition are very strict, there are few perfectly competitive markets.25A perfectly competitive market may have several(prenominal) distinguishing characteristics, includingInfinite Buyers/Infinite Sellers Infinite consumers with the willingness and ability to buy the product at a certain price, Infinite producers with the willingness and ability to supply the product at a certain price.Zero Entry/ survive Barriers It is relatively easy to enter or exit as a business in a perfectly competitive market.Perfect Information Prices and character reference of products are assumed to be known to all consumers and producersTransactions are Costless Buyers and sellers incur no costs in making an exch ange.Firms Aim to maximise Profits Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.Homogeneous Products The characteristics of any given market good or service do not vary across suppliersCharacteristics of Perfect Competition26Large number of sellers.Only homogeneous products are for sale.Firms are allowed to enter and exit freely.Perfect mobility of factors.Perfect knowledge of all market situations.Absents of transport cost.The Fig of Perfect Competition is given below27OligopolyIn economics, an oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). The word is derived, by analogy with monopoly, from the Greek oligoi few and poleein to sell. Because there are few sellers, each oligopolistic is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Strategic planning by oligopolistic de mand to be taken into account as a likely response of the other market participants.28This causes oligopolistic markets and industries to be a high risk for collusion.29Oligopoly is a reciprocal market form. As a quantitative description of oligopoly, the four-firm concentration ratio is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage.30In short, Oligopoly is a situation in which a particular market is controlled by a small group of firms.31In other words, Oligopoly is the state of limited competition between few producers or sellers.Characteristics of Oligopoly32Only few companies in the market.Sell either homogenous products or differentiated products.Barriers of entry exist. coarse interdependence in decision-makingNon-price competition exists.An oligopoly is much like amonopoly, in whichonly one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market.Kinke d demand curve is a demand curve made up of two part its suggested oligopolistic follow each reductions, but not price rises.Kinked demand curve can be used to explain why prices in oligopolistic markets are often rigid or stable for relatively long periods of time. Price Rigidity is a condition where one follows a decrease in price but not an increase in price. This is due to the ability of other firms to match prices with it and it often leads to a kinked demand curve.33Task-5Keynesian economicsKeynesian economics (also called Keynesianism Theory) is a macroeconomic theory based on the ideas of 20th-century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to calm output over the business cycle. The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936 the interpretations of Keynes are contentious, and several schools of thought claim his legacy.34Keynesian economics advocates a mixed economy-predominantly private sector, but with a large role of government and public sector-and served as the economic model during the latter part of the Great Depression, World War II, and the post-war Golden Age of Capitalism, 1945-1973, though it lost some influence following the stagflation of the 1970s. As a middle way between laissez-faire capitalism and socialism, it has been and continues to be attacked from both the right and the left. The advent of the global financial crisis in 2007 has caused resurgence in Keynesian thought. Keynesian economics has provided the theoretical underpinning for the plans of President Barack Obama, Prime Minister Gordon Brown and other global leaders to rescue the world economy.Keyne sian economics An overture to economic theory and policy derived from the influential writings of the English economist John Maynard Keynes (1883-1946). Prior to Keynes, governments tended to be guided by the argument of laissez-faire economics that an unregulated economy would tend to move towards full employment, and thence equilibrium.Keynes argued (in The General Theory of Employment, Interest and Money, 1936) that equilibrium could be established before that point was reached, and therefore that governments wishing to achieve full employment had actively to intervene in the economy by stimulating aggregate demand and, conversely, that if full employment resulted in inflation they should act to reduce aggregate demand, in both cases by using the devices of tax (fiscal) policy, government expenditure, and monetary policy (changes in interest rank and the supply of credit). Keynesianism, though forming the basis of economic policy in most Western societies for three decades afte r the Second World War, was itself challenged by the appearance of stagflation (simultaneous recession and inflation) in the 1970s, and consequently by the economic theories of monetarism. The dispute between these two approaches currently forms the major axis of disagreement within modern economics.35Monetarist EconomicsThe Monetarists theory is a development of earlier Classical theoretical work. Their main contribution is in updating many of these ideas to fit them into a more modern context.