Microeconomics and Macroeconomics

EconomicsArticles / Tutorial Titles

Introduction

Depending on the nature and gravity of the topics covered, economics is divided into two parts, namely:

  • Microeconomics
  • Macroeconomics.

Microeconomics deals with topics concerning individuals and businesses while macroeconomics deals with subjects related to countries and governments. Although there are some differences, the two types of economics are interdependent and there are many common grounds between the two types of economics.

What is Microeconomics?

Microeconomics deals with the allocation of resources made by individuals and businesses and how they trade goods and services. Microeconomics also looks at the prices at which goods and services are traded by individuals and businesses. Some topics that are discussed in microeconomics include taxes, government regulations, and legislation.

Microeconomics looks at the demand and supply of products and keeps a record of markets in terms of these two factors. It takes a bottom-up view in analyzing economic subjects. In simpler words, microeconomics is the type of economics that is related to human choices, decisions made by humans, and how they allocate resources.

Although microeconomics studies the markets and the forces of demand and supply, it does not try to explain what forces should drive the markets. Instead, it shows the effects of various forces on the markets. Microeconomics tries to illustrate what happens when certain conditions change in the markets.

Examples of macroeconomic topics may include the study of production maximization and how it can make organizations more efficient.

Some of the key topics studied under microeconomics include the following:

Market equilibrium due to demand and supply: In a market, economic prices are determined by the supply and demand mechanisms in the market. In a perfectly competitive market, there is a match between consumer-demanded prices and suppliers-offered prices. This creates an equilibrium in the market.

Employment and labor economics: This study includes subjects like the unemployment rate, wages, and income.

Production Theory: Production theory studies the processes of production and manufacturing. Production possibility frontier and opportunity cost are examples of topics considered under this theory.

Costs of production: According to the costs of production theory, the cost of goods and services is related to the resources used during the production of the items.

What is Macroeconomics?

Macroeconomics studies larger groups of individuals or companies and looks at topics that cover a wide range of studies. In general, macroeconomic studies include economic studies that are related to countries. Macroeconomics takes a top-down approach as it analyzes entire industries and/or economies.

Macroeconomics studies economy-wide phenomena, such as Gross Domestic Product (GDP), and how various economic indicators impact GDP on a larger scale. These economic indicators may include unemployment, income, rates of growth and price levels, etc. Macroeconomics relies on economic correlations and aggregates which is why governments rely on it to determine fiscal and monetary policies.

Macroeconomics is often considered a school of thought that is applicable to a whole nation. However, all its topics may not be related directly to national topics. Still, as macroeconomics primarily deals with topics that are related to national factors, we can term macroeconomics as the economics of nations.

It is observed that microeconomics depends on macroeconomics for its existence and well-being to a large extent.

For example, the demand and supply of goods are related to inflation to a large extent. However, topics like national income are also influential in changing the common microeconomic subjects such as demand and supply.

Differences between Microeconomics and Macroeconomics

There are some fundamental differences between microeconomics and macroeconomics.

These are as follows:

MicroeconomicsMacroeconomics



Concept

Microeconomics studies individuals, households, and firms’ behavior and how they allocate resources. The study of microeconomics is used in decision-making related to individual savings, investment, etc. or business revenue collection and growth, etc.

Macroeconomics on the other hand studies nations and economies as a whole. Topics studied under macroeconomics include larger estimates, such as GDP, national income, employment, inflation, etc.

Area of study

The area of study of macroeconomics is broader than microeconomics. Microeconomics studies particular market segments of an economy.

Macroeconomics studies the entire nation that comprises many market segments.

Topics covered

The topics covered under microeconomics include demand, supply, welfare, factor pricing, consumption, production, etc.

Macroeconomic studies include unemployment, inflation, national income, GDP, etc.

Business Application

Microeconomics deals with internal issues while macroeconomics deals with external and environmental issues. For example, issues like demand and supply are internal for a market.

Issues such as GDP and national income are external and environmental in nature, hence macroeconomics deals with these.

Scope

Topics such as demand, supply, pricing, etc., are covered under microeconomics.

macroeconomics deals with issues like inflation, national income, and GDP which are bigger in scope.

Significance

Microeconomics helps in regulating the prices depending on the prices of factors of production, namely, land, labor, entrepreneurship, and capital.

Macroeconomics decides the prices depending on a larger scale of issues, such as poverty, inflation, unemployment, etc.

Managing Bodies

The concepts of microeconomics and macroeconomics are handled and managed by different governing bodies. For example, microeconomic topics are managed by individuals and businesses.

While macroeconomic topics are managed by governments and government-like bodies.

Conclusion

Although micro and macroeconomics are studied differently, the ultimate aim of both is to offer welfare to the end-users. It is often seen that both microeconomics and macroeconomics are meant to offer well-being to individuals in an economy. However, the modes in which this occurs are different from one another. Microeconomics tends to bring prosperity by following norms that can be tweaked by individuals. However, the management of macroeconomic principles and initiatives is out of the reach of individuals.

However, both micro and macroeconomics are of importance to the general public. While there are differences between the two, the ultimate aim of both micro and macroeconomics is to bring public welfare to the forefront and efficient use of the two does so in lots of cases.

It must be noted that the impact of globalization and the advent of technology has brought about a sea change in the applications of micro and macroeconomics. They have changed the way distribution, production, and consumption work and hence, have disrupted the core of economics in a holistic manner.

FAQs

Q1. Which of the economic principles is larger in scope, micro or macroeconomics?

Ans. Macroeconomics covers topics that are broader in nature and hence it is larger in scope.

Q2. Who is credited as the founder of macroeconomics?

Ans. John Maynard Keynes is often credited as the founder of macroeconomics.

Q3. Which form of economics is more important for investors?

Ans. Investors should better concentrate on microeconomics but macroeconomics is also important.

Q4. Which form of economics discusses GDP, national income, and inflation?

Ans. Macroeconomics discusses the topics of GDP, national income, and inflation. These topics are related to nations which is a part of a broader economic system that is covered by macroeconomics.

Q5. Which form of economics discusses demand-supply equilibrium?

Ans. Microeconomics is the relevant form of economics that studies demand-supply equilibrium.

raja
Updated on 13-Oct-2022 11:19:47

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