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[pic] UNIT MICROECONOMICS AND MACROECONOMICS A. Understanding a printed text (1) T he following text will introduce you to the topic of microeconomics and macroeconomics. Look at the way it is divided into paragraphs. Pay attention to the notes in the margin. Now look at these questions: 1. How are the different branches of economics classified? 2. What does microeconomics do? 3. Is the general equilibrium theory part of microeconomics or macroeconomics? 4. Is partial analysis part of microeconomics or macroeconomics? 5. What does macroeconomics do? Read the passage through and find the answers to these questions. Remember, you do not have to understand every word to answer them. Economists specialise How economics an be classified Microeconomics 1-5 MICROECONOMICS AND MACROECONOMICS 1 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 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 macro-economic 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 economy we can discuss the market for cars. Comparing this with the market for bicycles, we may be able to explain the relative price of cars and bicycles and the relative output of these two goods. The sophisticated branch of microeconomics known as genera! equilibrium theory extends this approach to its logical conclusion. It studies simultaneously every market for even1 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. 2. 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 an in economic science, is to devise judicious simplifications which keep the analysis manageable without distorting reality too much. It is here that microeconomists and ma- croeconomists 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. 3 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. General equilibrium theory Economic': needs simplifications Indirect etlects lead to partial analysis Macroeconomics B. Check your understanding Now read the text carefully, looking up any new items in a dictionary or reference book. Then answer the following questions: 1. What distinguishes an energy economist from an urban economist? 2. Are the same questions asked in each area of economic life? 3. What is needed before total car purchases and production can be discussed? 4. What does the general equilibrium theory examine? 5. What can be understood from such a study? 6. What happens when an analysis becomes too complicated? 7. What can keep an analysis manageable? 8. What do most microeconomists leave out of their analysis? 9. What does partial analysis ignore? 10. Why would most macroeconomists not make a breakdown of consumer goods? C. Increase your vocabulary In this section you should use a dictionary to help you answer the questions about the text. 1, Look at the first paragraph again. What words correspond to these definitions? • way of studying a subject • give particular attention to • way of looking at a subject • quoted 2. Look at the first paragraph again and say what words have the opposite meaning to: • beginning • at different times • simple and uncomplicated 3. Look at the first paragraph again. Can you explain the words: • consumption • exchange 4. Look at paragraph 2 and say which words have the same meaning as: • pulling out of shape • pay not enough attention to • pay no attention to • think out, plan • keep safe • brought about • showing or having good sense 5. Look at paragraph 3 and say which words have the same meaning as: • keep • makes easier, less complicated • as a rule, characteristically • be sensible • make a blow-job D. Check your grammar DEFINING Do you remember? A labour economist is a person who deals with problems of the labour market. The segment of economic life in which I am most interested is urban economics. 1. Define each of the words given below. Use the examples above as a model. • microeconomics • macroeconomics • a worker • a miner • coal • an energy economist is... • international economics • a monetary economist • baseball • consumer goods ADJECTIVES AND ADVERBS Do you remember? General equilibrium theory is a relatively difficult branch of economics to understand. That looks an expensive cassette player. Actually, I bought it quite cheaply. 2. Complete the following sentences, using the words in brackets. • This is a ........ ........ book to read. (comparative, easy). • ........ car production is not always ........ to estimate ......... (total, easy, accurate) • Even some ........ tools of........ analysis are not........ known. (common, economic, general) • Some microeconomic analyses offer........ detailed treatments of........ decisions, (extreme, individual) • If we compare the market for cars and bicycles......... we may be able to offer a ........ explanation for their........ prices. (careful, good, relative) • ........ she managed to pass her........ exams......... (fortunate, final, easy) » My tutor emphasised the ........ importance of putting ideas in a ........ order. (great, logical) • ........ analysis ignores........ induced effects. (partial, indirect) • The ........ economist keeps his analysis ........ without........ distorting reality. (sensible, manageable, undue) • She's an ........ novelist - something ........ and ........ ........ happens in her stories. (excellent, unusual, exciting, constant) [pic] E. Understanding a lecture You are now going to hear part of a lecture, divided into short sections to help you understand it. As you listen, answer the questions below. Section 1———————————————————————————Are these statements correct or incorrect? • The students will not study macroeconomics at all after this lecture. • The lecturer expects his students to have heard more about macroeconomics than microeconomics. • Macroeconomics is of greater public interest than microeconomics.' Section 2———————————————————————————— • How many key terms is the lecturer going to talk about? • Note down the first term the lecturer introduces. • Note down the abbreviation for this term. • Note down the meaning of the term. Section 3——————-—————————— • Note down the next term the lecturer introduces. • Note down the meaning of the term. • Is this statement correct or incorrect? ' The labour force includes those people who don't have to work but are of working age. 2. Now wind the cassette back to the beginning of the lecture and listen to it again. This time, instead of answering questions, take notes. The questions you have already answered will help you do this. When you have listened to the whole of the lecture, you will be asked to give a short oral summary of it. So make sure you note down the most important points of the lecture. 3. You should also write a summary of the lecture, based on your notes. • Is this statement correct or incorrect? Prices of different goods move inline with each other. • Note down the term the lecturer uses to describe an economy in which the price level is rising. Section 4- Note down the next term the lecturer introduces. Note down the meaning of the term. F. Understanding a printed text (2) The following text provides a summary of what you have read about and listened to so far. Read the text carefully, looking up anything you do not understand. SUMMARY 1 Economics analyses what, how, and for whom society produces. The central economic problem is to reconcile the conflict between people's virtually unlimited demands with society's limited ability to produce goods and services to fulfil these demands. 2 The production possibility frontier shows the maximum amount of one good that can be produced for each given level of output of the other good. It depicts the trade-off or menu of choices that society must make in deciding what to produce. Resources are scarce and points outside the frontier are unattainable. It is inefficient to produce within the frontier. By moving on to the frontier, society could have more of some good without having less of any other good. 3 Industrial Western countries rely extensively on markets to allocate resources. The market is the process by which production and consumption decisions are co-ordinated through adjustments in prices. The role of prices is central to this definition. 4 In a command economy, decisions on what, how, and for whom are made in a central planning office. No economy relies entirely on command, but there is extensive planning in many Soviet bloc countries. 5 A free market economy has no government intervention. Resources are allocated entirely through markets in which individuals pursue their own self-interest. 6 Modern economies in the West are mixed, relying mainly on the market but with a large dose of government intervention. The optimal level of government intervention remains a subject of controversy. 7 Positive economics studies how the economy actually behaves. Normative economics makes prescriptions about what should be done. The two should be kept separate as far as possible. Given sufficient research, economists should eventually agree on issues in positive economics. Normative economics involves subjective value judgments. There is no reason why economists should agree about normative statements. 8 Microeconomics offers a detailed analysis of particular activities in the economy. For simplicity, it may neglect some interactions with the rest of the economy. Macroeconomics emphasizes these interactions at the cost of simplifying the individual building blocks. G. Check your understanding 1. Look at the first paragraph again. What words have the same meaning as: • almost • in the middle • argument, disagreement 2. Look at paragraph 2 again. What words have the opposite meaning to: • can be achieved • working well 3. Look at paragraph 3 again. What words have the same meaning as: • depend on • brought together 4. Look at paragraph 5 again. What does this word refer to? 5. Look at paragraph 6 again. What words have the same meaning as: • disagreement • for the most part • stays 6. Look at paragraph 7 again. What words have the opposite meaning to: • together • not enough 7. Look at paragraph 8 again. What words have the same meaning as: • making less complicated • pay little or no attention to 8. Now look at these key terms. Write a short explanation of each one. You can refer back to previous units if you want. Scarcity___________________________________________________ _________________________________________________________ Income distribution _________________________________________________________ _________________________________________________________Transfer payments _________________________________________________________ _________________________________________________________Production possibility frontier _________________________________________________________ _________________________________________________________Diminishing returns _________________________________________________________ _________________________________________________________The free market _________________________________________________________ _________________________________________________________The command economy _________________________________________________________ _________________________________________________________The mixed economy _________________________________________________________ _________________________________________________________ Microeconomics Macroeconomics Cross national product Inflation Unemployment rate [pic] H. Understanding discourse Listen to this lecturer explaining what you must do if there is a fire in the building. You are in room 101. If there was a fire now, where would you go?