4. What is the difference between microeconomics and macroeconomics? Explain the main macroeconomic concepts and issues.

Microeconomic analysis offers a detailed treatment of individual decisions about particular commodities.

General equilibrium theory studies simultaneously every market for every commodity. From this we can understand the complete pattern (модель) of consumption, production, and exchange in the whole economy at a point in time.

But the analysis becomes very complicated, so economists try to simplify analysis to keep it manageable. Microeconomists tend to offer a detailed treatment of one aspect of economic behavior but ignore interactions with the rest of the economy in order to save the simplicity of the analysis.

Macroeconomics emphasizes the interactions in the economy as a whole. Macroeconomics is concerned not with the details - the price of cigarettes relative to the price of bread, or the output of cars relative to the output of steel - but with the overall picture. It includes such issues as the determination (определение) of the total output of the economy, the aggregate level of unemployment, and the rate of inflation or growth of prices of goods and services as a whole.

The distinction between microeconomics and macroeconomics is more than the difference between economics in the small and economics in the large.Microeconomics and macroeconomics take different approaches to keep the analysis manageable.

Microeconomics emphasizes on a detailed understanding of particular markets. To achieve this amount of detail, many of the interactions with other markets are ignored.

Microeconomics is a bit like looking at a horse race through a pair of binoculars. It is great for details, but sometimes we get a clearer picture of the whole race by using the naked eye. Macroeconomics simplifies the building blocks in order to focus on how they fit together and influence one another. When we study macroeconomics we don`t notice details, but we can give our full attention to the whole picture.

issues

The main issues in macroeconomics are.

Inflation. Inflation is defined as a sustained increase in the average price of goods and factors of production over time.

Unemployment. Unemployment is a measure of the number of people registered as looking for work but without a job. The unemployment rate is the percentage of the labor force that is unemployed. The labor force is the number of people working or looking for work.

Output and Growth. Real gross national product (real GNP) measures the total income of the economy. It tells us the quantity of goods and services the economy as a whole can afford to purchase.

Macroeconomic Policy. The government has a variety of policy measures through which it can try to affect the performance of the economy as a whole. It levies taxes, commissions spending, influences the money supply, interest rates and the exchange rate and it sets targets for the output and prices of nationalized industries.

5. What is a market? What economic functions do markets perform? Describe market forces.

Markets bring together buyers and sellers of goods and services. A market is a definition of the process by which households' decisions about consumption of alternative goods, firms' decisions about what and how to produce, and workers' decisions about how much and for whom to work are all reconciled by adjustment of prices.

Prices of goods and of resources, such as labor, machinery and land, adjust to ensure that scarce resources are used to produce those goods and services that society demands.

Prices are guiding your decision to buy a good, the owner's decision to sell it, and the labor force's decision to take the job. Society is allocating resources into goods production through the price system. For example, if nobody liked hamburgers, the owner could not sell enough at a price that covered the cost of running the cafe and society would give no resources to hamburger production. People's desire to eat hamburgers guides resources into hamburger production. However, if beef became scarce resource, the price of beef would increase, hamburger producers would raise prices, and consumers would buy more cheese sandwiches for lunch.

There were several markets involved in your purchase of a hamburger. Market is a set of arrangements through which prices influence the allocation of scarce resources.

A market is a set of arrangements by which buyers and sellers are in contact to exchange goods or services

FUNCTIONS

Some markets (shops and fruit stalls) physically bring together the buyer and the seller. Other markets (the London Stock Exchange) operate chiefly through intermediaries (stockbrokers

Markets determine prices that ensure that the quantity people wish to buy equals the quantity people wish to sell. Price and quantity cannot be considered separately. These prices guide society in choosing what, how, and for whom to purchase.

Prices in a Market Economy

Prices perform two important economic functions: They ration scarce resources and they motivate production.

As a general rule, the more scarce something is, the higher its price will be, and the fewer people will want to buy it. Economists describe this as the rationing effect of prices. In a market system goods and services are allocated, or distributed, based on their price.

Price increases attract additional producers. Similarly, price decreases drive producers out of the market. In this way prices encourage producers to increase or decrease their level of output. Economists refer to this as the production-motivating function of prices.

Demand is the quantity of goods buyers wish to purchase at each potential price. Thus demand is a full description of the quantity of goods the buyer would purchase at each and every price which might be charged. As the price of good rises, the quantity demanded falls, other things equal.

Supply is the quantity of goods sellers wish to sell at each potential price. Supply is not a particular quantity but a complete description of the quantity that sellers would like to sell at each and every possible price. Nobody would wish to supply if they receive a zero price. At higher prices the quantity of bars that would be supplied increase. Demand describes the behavior of buyers at every price. The term 'quantity demanded' makes sense only in relation to a particular price.

Other things equal, the lower the price of chocolate, the higher the quantity demanded. Other things equal, the higher the price of chocolate, the higher the quantity supplied.