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Economics is the branch of social science that deals with the ideas of production, consumption and distribution of resources and wealth in an economy. It can even be termed “behavioral science” as it talks about why and how individuals and firms behave the way they do, in terms of production and consumption of goods, and how such behavior affects the economy as a whole.
(i) Microeconomics is the study of behavior of entities on a modular or micro level. It deals with the behavior of individuals and firms in terms of their decision making process with regard to resources. For example, microeconomics talks about when people tend to increase consumption of a product or how a firm decides on the level of output based on input parameters like raw material and labor.
The underlying aspect in microeconomics is that of demand and supply. Demand and supply are inversely related to each other. As supply of a common product goes down, its demand tends to increase, and vice-versa.
The demand curve is downward sloping and the supply curve is upward sloping. This is for the simple reason that when price of a product decreases, consumers’ demand for the product increases (“quantity” of demand curve). Similarly, when price of a product increases, manufacturers tend to increase the supply (“quantity” of supply curve) in order to maximize their revenue.
(ii) Macroeconomics is the other sub-branch of economics that deals with the same issues but on a broader level, in terms of the nation’s economy. The base of microeconomics is used and further built upon to analyze macro-economic variables like GDP, growth, unemployment, inflation, fiscal policy, etc.