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Differences Between Micro and Macro Economics

By Shrabani1 Aug 18, 2013 777 Words
Although there are other branches of economic study, micro and macroeconomics are the most well-known. Over the years, both have become an increasingly common part of high school and college-level curriculums. Despite their popularity, however, the principles of these disciplines are frequently misunderstood or confused. While they share some of the same concepts and are interrelated in important ways, there is a fundamental difference between micro and macroeconomics. The simplest way to distinguish microeconomics from macroeconomics is to think about the names of these two fields. As its name indicates, microeconomics is the study of economics on a smaller, more detailed scale. Similarly, the basic definition of macroeconomics is that it is the study of economics on a larger, broader scale. Definition and Meaning of Microeconomics

Microeconomics looks at the behavior of individual people and companies within the economy. It is based on the idea of a market economy, in which consumer demand is the driving force behind the prices and production levels of goods and services. Microeconomics is interested in how specific parties choose to use the limited resources that are available to them. It focuses on what drives them to make their decisions, as well as the ways in which their decisions affect the supply and demand of particular goods and services. In turn, these choices influence the price levels of various commodities. Microeconomics also examines how the decisions of individuals impact specific industries. For example, economists studying at the micro level might be interested in discovering how current consumer demand is affecting the well-being of the oil industry. Another basic principle of microeconomics is the "theory of the firm." This studies the actions of businesses as they strive to increase their profits. It looks at which resources they choose to utilize as inputs, how much they produce, and what they charge for their goods or services. In summary, microeconomics concerns itself with the human beings whose purchasing and production-related decisions come together to form the backbone of a given economy. Even when it involves companies, the focus of microeconomics is always at the personal level. Definition and Meaning of Macroeconomics

The most concrete definition of macroeconomics is that it is a study of "the big picture" in the economy. Instead of focusing on individual households and firms, it examines conditions within the economy as a whole. This is the most vital difference of micro and macroeconomics. In more technical terms, macroeconomics looks at the factors that influence aggregate supply and demand. Since it is associated with the conditions of national economies, it deals with such statistics as unemployment rates, gross domestic product (GDP), overall price levels, and inflation. Its general nature makes it closely associated with public policy. Most nations around the world have their own central banks; in the United States, this is the Federal Reserve. In any class about macroeconomics, the actions of a given country's central bank (known collectively as monetary policy) will be a major topic of discussion. Those studying economics at the macro level will learn about the factors that drive a central bank to manipulate the interest rates and money supply of its respective nation at any given time. They will also learn about the ways in which the decisions of the national government can affect the overall economy. These governmental actions are known collectively as fiscal policy. Although macroeconomics has a much broader focus than microeconomics does, many macroeconomic factors are essential to making predictions and conclusions at the microeconomic level. For instance, knowing what the unemployment rate is at the national level can help a microeconomist predict future layoffs in a specific industry. Differences Between Macro and Microeconomics

To an extent, both macro and microeconomics look at supply and demand, as well as price levels. However, each field views these factors from a different standpoint. To better grasp the meaning of macroeconomics, it might be helpful to think of it as a "top-down approach" toward understanding the economy. Macroeconomics paints a picture of the economic conditions in a particular country as a whole; however, knowledge of macroeconomic principles can be used to develop an understanding of conditions for the individual players in the economy. Likewise, microeconomics looks at the economy from the bottom up, but the information it gathers about individual households and businesses is helpful in gaining an understanding of general economic conditions. The difference of micro and macroeconomics may seem well-defined on the surface, but these two categories of study can overlap in significant ways. In fact, no student of the economy can truly comprehend the meaning of macroeconomics without comprehending the meaning of microeconomics as well.

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