Write about Microeconomics and Macroeconomics

Microeconomics is study of units in the economy. It's basically concerned with theory of demand and supply, utility, wages, consumer and production theory.

It explains how prices of individual goods for example, bread flour etc. are relates to their demand and their supply. This give rise to law of demand and law of supply. Law of demand state that, when price increases the quantity demanded of it decreases. This shows a negative relationship between price and quantity demanded. The law of supply state that, increase in price of a good result to increase in quantity supplied in the market. When this is plotted in a graph, it give rise to supply and demand curve and therefore, determination of equilibrium in the market.

In production side, microeconomics explains how the factors of production I.e. labour, capital are combined to maximize output. Examples of production function used include Cobb's Douglas and leontief production functions. Firms evaluates it Marginal cost ( cost incurred as a result of production of extra unit of a good) and Marginal revenue ( revenue gained as a result of extra sale of a unit of a good). In advanced level, theories of utility, wage etc. are also discussed.

Macroeconomics involve study of economy at a whole involving study of aggregates and averages. It's concerned with determination of equilibrium in the economy. Macroeconomics variables such as output, consumption, government spending, imports and exports are discusses. It explains equilibrium both in closed and open economy. In closed economy Y=C+I+G where Y is output (GDP), C is consumption, I is investment and G is government spending. In open economy, Net exports are included NX= (X-M) where X is exports, M is imports.

In macroeconomics, theories and models are used such as classical theory, neoclassical, Keynesian theory, IS-LM model and AD-AS model. They're used to explain the macroeconomics environment and how chenage in one variable leads to change in the other variables in the economy.