MICROECONOMICS AND MACROECONOMICS

MICROECONOMICS AND MACROECONOMICS

People involved in economic activities who want to start and run successfully their own businesses must understand both microeconomics and macroeconomics so that they may make sound economic decisions.

Microeconomics refers to the study of costs and revenues of individual enterprises .Prices of individual items are set at the 'microeconomics' level , by means of the demand and supply curves. If the price of a certain product declines, it generates a greater demand. Correspondingly, the supply of a product (i.e. the production) increases following a rise of its price. By combining the demand and the supply, the market places manage to establish a point of equilibrium where the ideal price of a product can be found.

But the prices have a great influence not only on producers but on investors as well. Therefore, the customers or the buyers are those who through their willingness to buy a certain product basically shape the allocation of resources and production of goods.

Price affects the supply of a product by helping business people to decide which industries to invest in .New factories and new companies came into being because the market price of a certain item signaled high profit potentials to managers and investors. These signals come largely from the behavior of consumers.

Whereas eighteenth century economists believed that all production and allocation decisions could be made by businesspeople on the basis of prices set by the free-market, in our modern society, the government can use its power to change prices or change the way resources are allocated.

Society needs things such as: police, fire protection, road building or satellite launching, which the free-market system cannot supply properly. This is where government intervenes, supplying public goods and services, setting up taxes and duties to regulate business and making transfer payments.

The macroeconomic level helps us view a national economic system as a whole .At the macroeconomic level, the concept of circular flow illustrates the interrelationships among businesses, households and governments .If one looks at an economy as a giant circulatory system, then businesses and consumer households can be regarded as two vital organs: the heart and the lung. Each needs the other to keep going just as the bloodstream carries in one direction and carbon dioxide in the other, the economy carries goods and services on way and money the other .Consumer households pay money for the goods and services provided by businesses. With this money businesses pay for raw materials and for the labor force which also comes from households. Meanwhile, the government is involved in the system as well. It buys goods and services, as well as labor. Households, which provide workers, are producers and consumers at the same time, businesses are consumers of labor and producers alike. Money in this pattern appears under different names (taxes, pay, and purchase) depending on what goods and services are exchanged for money. The circular flow shows the interrelations between all the elements taking part in the economic activity .This flow is measured in terms of the gross national product (GNP) which indicates a nation's economic growth and provides a comparison with the output of other nations.

Every year thousands of hopeful entrepreneurs launch new businesses. If they come up with a good product or service, if they manage to get enough financial aid to see them through the first difficult months or even years, they may make a go for it.

Text Comprehension

1. Answer the following questions

- How can you define microeconomics?

- What does macroeconomics involve?

- What does the concept of circular flow mean ?

- What are the effects of prices ?

- What is the role of the market places ?

-What does GDP indicate?

- What is the role of government in a market-oriented economy?

2. Vocabulary

- sound decision = decizie corecta, potrivita

- to be involved = a fi implicat

- cost and revenues =cheltuieli si venituri

- demand and supply curve = curba cererii si ofertei

-to rise- rose- risen = a creste, a se ridica, a se inalta

- to raise (ed) = a creste, a mari, a ridica

- customer = client

-household = gospodarie

- allocation of resources = alocare de resurse

- flow = flux

- raw materials = materii prime

- GNP (gross national product) = produsul national brut

- entrepreneur = intreprinzator

- to launch = a lansa

- output = productie

3.Topics for speaking and written texts

Should governments intervene in economic activities ? When and why ?

Give examples of good/bad interventions at macroeconomic level .

How do supply and demand influence product prices?