MICROECONOMICS

AND
MACROECONOMICS
APPLIED ECONOMICS 11
Module Objectives:
After going through this module, you are expected to:

• define microeconomics and macroeconomics;

• distinguish microeconomics and
macroeconomics in terms of nature and
scope; and
• enumerate microeconomic and
macroeconomic activities.
 MICROECONOMICS
• Microeconomics is a branch of
economics that studies the
behavior of individuals and firms
in making decisions regarding the
allocation of scarce resources and
the interactions among these
individuals and firms.
 MICROECONOMICS
• Microeconomics seeks to
understand what happens when
there are changes in certain
conditions in relation to household
preferences and decisions, resource
management, individual demand,
business supply, and market
activity.
 MICROECONOMICS
• Microeconomics focuses on understanding
how a business operates within a market.
• Businesses analyze things like their production
capabilities and the market forces (supply,
demand, prices, etc.) to make decisions.
• For example, they want to know if they are
making enough profit, using their resources
efficiently, or benefiting from producing at a
larger scale to lower costs.
These are some of the microeconomics
principles:
• Demand, Supply, and Equilibrium

Price is the determinant to

consumers and suppliers according to
the law of supply and demand. As
prices increases, the suppliers will
produce more products while
consumers will buy less.
• Production Theory
Production theory explains how
businesses decide what to produce,
how much to produce, and what
resources to use to make goods or
services efficiently. It focuses on turning
inputs (like labor, materials, and
machines) into outputs (finished
products or services) while minimizing
costs and maximizing profits.
• Simple Example:
Imagine you bake cookies to sell:
1. Inputs: You need flour, sugar,
butter, an oven, and your time
(labor).
2. Process: You mix the ingredients,
bake the cookies, and package
them.
3. Output: The cookies you sell to
customers.
Production theory looks at questions
like:

• How many cookies should you bake

to make the most profit?
• Should you hire someone to help if
demand increases?
• Can you use your oven more
efficiently to bake more cookies in
less time?
•In short, production
theory helps businesses
figure out the best way to
use their resources to
produce goods and
services effectively.
• Consumer Theory

This theory explain how

people decide to spend their
money based on their individual
preferences and budget
constraints.
ASSESSME
NT
1. What does microeconomics
primarily study?
A. The behavior of countries in global trade
B. The behavior of individuals and firms in
decision-making
C. The role of government in economic
policies
D.The movement of money in international
markets
2. According to the law of supply and
demand, what happens when prices increase?

A. Consumers buy more, and suppliers

produce less
B. Consumers buy less, and suppliers
produce more
C. Both consumers and suppliers reduce
their activity
D.Consumers and suppliers are unaffected
3. Which of the following best
describes production theory?
A. It examines how goods are produced
using available inputs
B. It studies how prices are set in a market
C. It explores how individuals spend money
based on preferences
D.It focuses on government intervention in
markets
4. What does consumer theory
analyze?
A. How businesses determine production
capacity
B. How governments allocate resources
C. How people spend money based on their
preferences and budget
D.How markets reach equilibrium
5. Which of the following is an
example of microeconomic analysis?

A. Studying global economic growth

B. Measuring a country's unemployment rate
C. Understanding how international trade
impacts currency exchange rates
D.Analyzing how a factory optimizes
production to maximize profit
ESSAY: (15 POINTS)

"Explain how microeconomics helps

businesses make better decisions about
production and profitability. Include
examples of how principles such as demand
and supply, production theory, and
consumer theory are applied in real-world
scenarios."
MACROECONOMICS
•Macroeconomics is the study
of how the economy works.
•Instead of focusing on
individual people or
businesses, it looks at big-
picture topics.
Topics like:
• How much people in a country buy and sell
overall (aggregate demand and supply).
• The total income a country earns (national
income).
• How the government manages the economy
with things like taxes, spending, and policies.
• How countries trade goods and services with
each other (international trade).
•In simple terms, Macroeconomics
is about understanding the
economy on a large scale, such
as how a country grows, deals
with unemployment, or controls
inflation.
John Maynard Keynes (1883-
1946)
John Maynard Keynes
(1883-1946) is known for
his economic
theories (Keynesian
economics) on the causes
of prolonged
unemployment.
John Maynard Keynes (1883-
1946)
• His most important work, The
General Theory of
Employment, Interest and
Money, advocated a remedy for
economic recession based on a
government-sponsored policy of
full employment.
• He is recognized as the father of
modern economics and
macroeconomics.
These are some of the macroeconomics
principles:

1.GROSS DOMESTICS PRODUCT:

It measures the overall performance

of the economy through the
aggregate output produced in the
country.
2. PHILIP’S CURVE
The Phillips Curve is a concept in
economics that shows how unemployment
and inflation are connected.

• Inflation: This is when prices of goods and

services go up.
• Unemployment: This is the percentage of
people who want jobs but can’t find them.
2. PHILIP’S CURVE
Key Idea:

• The Phillips Curve suggests an inverse

relationship:
• When unemployment is low, inflation tends to be
high (because more people have jobs, they spend
more, and prices go up).
• When unemployment is high, inflation tends to be
low (because fewer people are spending, so prices
don’t rise as much).
2. PHILIP’S CURVE
In Simple Terms:

• It’s like a seesaw:

• If unemployment goes down, inflation often
goes up.
• If unemployment goes up, inflation often
goes down.
3. FISCAL POLICY

•Fiscal Policy is how the

government manages its
money to influence the
economy.
3. FISCAL POLICY

It uses two main tools:

1. Taxation
2. Government Spending
TAXATION
Taxation: The government can increase or
decrease taxes to affect how much money
people and businesses have.

• Lower taxes give people more money to

spend, which can boost the economy.
• Higher taxes can slow down spending if the
economy is overheating.
GOVERNMENT SPENDING
Government Spending: The government
spends money on things like schools,
roads, and healthcare to create jobs and
stimulate the economy.

• More spending can help during a

recession.
• Less spending can help control inflation.
3. FISCAL POLICY
In Simple Terms:
• Fiscal policy is like the government’s budget plan
to keep the economy stable. By adjusting taxes
and spending, they try to:

• Create jobs
• Control inflation
• Support economic growth
MONETARY POLICY
• Monetary policy is a critical tool used by a
country's central bank to manage the
economy by controlling the money supply
and influencing interest rates.
• Through monetary policy, the central bank
aims to achieve key economic goals such as
stable prices (low inflation), full employment,
and sustainable economic growth.
Types of Monetary Policy
1. Expansionary Monetary Policy:

• This policy is used to stimulate economic growth,

especially during periods of recession or slow economic
activity. The central bank does this by increasing the
money supply and lowering interest rates.

• Lower interest rates make borrowing cheaper, encouraging

businesses to invest and consumers to spend. This can lead
to increased demand for goods and services, boosting
economic activity.
Types of Monetary Policy
2. Contractionary Monetary Policy:

• This policy is used to cool down an overheating

economy or to control high inflation. The central
bank does this by reducing the money supply and
raising interest rates.
• Higher interest rates make borrowing more
expensive, which can reduce consumer spending and
business investment, thereby decreasing demand
and slowing economic activity.