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Maharashtra State Board · HSC Commerce · Class 12 (Std XII)

Class 12 Economics Chapter 1: Introduction to Micro and Macro Economics

Short notes, key concepts, quick revision and practice MCQs with answers

Explains the two main branches of modern economics. Micro economics studies individual units and prices, while macro economics studies the whole economy through aggregates such as national income, employment and the price level.

Key concepts: Introduction to Micro and Macro Economics

Micro economics
The branch of economics that studies the behaviour of individual units such as a consumer, a firm or the price of one commodity. It is also called price theory.
Macro economics
The branch of economics that studies the economy as a whole, dealing with aggregates like national income, total employment, total savings, investment and the general price level.
Scope of micro economics
Covers product pricing (demand and supply analysis), factor pricing (rent, wages, interest, profit) and the theory of economic welfare.
Scope of macro economics
Covers income and employment, general price level and inflation, growth and development, macro distribution, business cycles, and consumption and investment functions.
Slicing method
Micro economics splits the economy into small units and studies each one separately, using the assumption of other things remaining constant (ceteris paribus).
Lumping method
Macro economics studies the economy as a whole rather than its parts, as a forest is an aggregation of trees, and uses general equilibrium analysis.
Partial and general equilibrium
Partial equilibrium studies the balance of one consumer, firm or industry in isolation. General equilibrium studies demand, supply and prices in the whole economy together.
Marginalism
A key tool of micro analysis. Marginal means the change brought in the total by one additional unit, and producers and consumers decide using it.

Quick revision: important points

Practice MCQs with answers

  1. Who coined the terms micro economics and macro economics in 1933?

    1. J. M. Keynes
    2. Ragnar Frisch
    3. Alfred Marshall
    4. Adam Smith
    Show answer

    Answer: B. Ragnar Frisch
    The Norwegian economist Ragnar Frisch introduced the two terms in 1933.

  2. The word 'Mikros', from which 'micro' is derived, means:

    1. Large
    2. Whole
    3. Small or a millionth part
    4. Total
    Show answer

    Answer: C. Small or a millionth part
    Mikros is Greek for small, while Makros means large.

  3. Which book by Alfred Marshall, published in 1890, popularised micro economics?

    1. Principles of Economics
    2. General Theory of Employment, Interest and Money
    3. The Wealth of Nations
    4. Theory of Business Cycles
    Show answer

    Answer: A. Principles of Economics
    Marshall's Principles of Economics (1890) made the micro approach popular.

  4. Which book published in 1936 laid the foundation of the macro economic approach?

    1. Principles of Economics
    2. The Wealth of Nations
    3. Theory of Economic Welfare
    4. General Theory of Employment, Interest and Money
    Show answer

    Answer: D. General Theory of Employment, Interest and Money
    Lord Keynes wrote the General Theory in 1936 after the Great Depression and is credited with developing macro economics.

  5. Micro economics mainly studies:

    1. The whole economy at once
    2. Individual economic units such as a consumer or a firm
    3. National income and total output
    4. The general price level
    Show answer

    Answer: B. Individual economic units such as a consumer or a firm
    Micro means a small part, so it deals with individual units like a consumer, producer or one price.

All Class 12 Economics chapters

Class 12 Economics notes: all chapters