explain interdependence between microeconomics and macroeconomics explain by giving the example.
~~INTERDEPENDENCE BETWEEN MICRO AND MACRO ECONOMICS
Micro and macro economics are the two sides of the same coin.There is close interdependence between the two.We cannot analyse the individual behaviour without the assuming to aggregate and likewise aggregate cannot be effective unless individual variables are kept under considration.
Micro economics contributes towards macro economics in a number of ways as:-
1.Study of economic fluctuations:-Business cycles which are universal in every sector,are influnced by both individuals and aggregate factors.Unless we reveiw both micro and aggergate variables,we can not provide an appropriate solution to business cycles.Therfore to study trade cycles micro and macro economics contribute significantly.
2.Basis of economic laws:-Micro economics acts as a basis macro economics because macro is an aggregate of individual units.The success and accuracy of aggregates depends on the individual units.Similarly,macro theories are used by micro economists.
3.Role in international trade:-In international trade both the approches are used.Economists have developed their theories on the basis of micro economics presuming full emplyoment of resources and mobility of factors mof production.However,modern economists looked on the economy as a whole and recognised the role of aggregates.So genral equlibrium is nothing but an extension of equlibrium of micro economics.
4.Balance of payments and interdependence:-Balance of payments problem is also a burning problem for economy.An individual sector may have favourable balance of payments whereas other sectors,unfavourable balance of payments.On the other hand.the overall position of an economy is to be assessed from aggregate position of all sectors.
5.Theory of tariffs:-Many economists have propounded that modern macro approaches of imposing tariffs with the intenstion of correcting balance of payments position is virtually based on the theory of monopoly.So micro economics has influenced the modern macro economics theory.