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how macroeconomics is different from microeconomics.

By hoboa Oct 18, 2013 1218 Words
Explain briefly how macroeconomics is different from microeconomics. Please give examples.

What is economics? Before we start to learn about economics, we have to understand that what is the different between macroeconomics and microeconomics. Macroeconomics and microeconomics are the main branches of economics. (Karl E. Case, Ray C. Fair and Sharon M. Oster (2012): Principles of Economics, 10th ed. Global Edition, Chapter 1). And, I will describe that with examples. Microeconomics seems likes the “trees”. It studies and focuses on one unit at the same time, like the firm, the industry and the household. Nevertheless, macroeconomics seems like the “forest”. It is because it studies and analyses the whole economics, the sum of these.

First of all, Microeconomics examines the functioning of individual industries and the behavior of individual decision – making units, typically firms and households.( Karl E. Case, Ray C. Fair and Sharon M. Oster (2012): Principles of Economics, 10th ed. Global Edition, Chapter 1) It also analyses about the individual producers – that is how to allocate limited resources in the production of various commodities to make the maximum profits. Furthermore, microeconomics studies how households and firms make choices, how they interact on the market and how the government tried to influence their choice. Microeconomics concerned about people's decisions and behaviors, that how to affect the supply and demand by goods and services. For example, who is responsible for determining prices and also how to determine the supply and demand by goods and services. Microeconomics would be more focus on examine one aspect of the economic behavior. Nevertheless, it will neglect the interaction with the rest of the economy in order. It is for keep the simplicity of the analysis. In my opinion, i think the important thing in microeconomics, that is microeconomics always ignore other problems during analysis the individual research. When microeconomics analysis neglects some of these indirect effects, it would be “partial’ rather than “general’ analysis.”Partial" equals the microeconomics analysis; "general" equals the macroeconomics. That also is the main different between microeconomics and macroeconomics. And, according to the principle of microeconomics which is microeconomics focus on detailed understanding of particular markets. So, many interactions with other markets are suppressed. On the other hand, macroeconomics looks at the economy as a whole and examines the economic behavior of aggregates – income, employment, output and so on – on a national scale. (Karl E. Case, Ray C. Fair and Sharon M. Oster (2012): Principles of Economics, 10th ed. Global Edition, Chapter 1) Also, macroeconomics studies the interaction of different parts of the economy. Macroeconomics analysis is based on production, income, price level and unemployment throughout the economic behavior. Macroeconomics studies the economy as a whole, including some problem, such as inflation, unemployment and economic growth. And, some macroeconomics concepts like gross domestic product, aggregate price level and unemployment rate always use for analysis about macroeconomics. Macroeconomics will explain why the economy will have an economic recession and unemployment. And, macroeconomics will talk about why some economies grow much faster than other economies in the long period. Also, macroeconomics involved in policy issues, such as government intervention can reduce the severity of the recession. Generally, macroeconomics focuses on households, firms (which together compose the private sector), the government (the public sector) and the rest of the world (the international sector). And, government has used some policies to influence the macroeconomy. For example, fiscal policy, monetary policy and growth or supply – side policies. Macroeconomics would not study ‘one’ thing, such as just one product, like a car or a bed. They group them to be “consumer goods”.

There are many differences between microeconomics and macroeconomics. The typical different is microeconomics deals with ‘individual’ and macroeconomics deals with ‘aggregate’. That is macroeconomics deals with the sum of these ‘individual’. There are some differences,

First of all, I will talk about the production different. In microeconomics, the production and output are in individual industries and businesses. They will think about what to produce, how much to buy, some of these personal questions. For example, how many cars they will produce or how much office space they need to rent. On the opposite side, macroeconomics is focused on national production and output. For example, the total industrial output, gross domestic product and growth of output.

The second is about the prices different between microeconomics and macroeconomics. In microeconomics, it just focuses on the prices of individual goods and services. It examines on one product’s price. For example, price of skin care, price of coal, food prices and also apartment rents. However, macroeconomics looks at the overall price level which is aggregate the price level. For example, the consumer prices, producers prices and rate of inflation, etc. it can use for examine the whole economics and know more interaction on the whole economics. In addition, we will talk about the employment different between microeconomics and macroeconomics. In microeconomics, it is concentrate on employment by individual business and industries. For example, the jobs in the medical industry, number of employees in a firm and number of accountants. However, macroeconomics is focused on the employment and the unemployment in the economy. For example, the unemployment rate and the total number of jobs. Macroeconomics will use this information to analysis the interaction on the markets.

Moreover, I will talk about the "income" difference between microeconomics and macroeconomics. In macroeconomics, income means national income. They just look at the total wages and the total salaries. They also look at the total corporate profits. On the opposite side, We can see that the income in microeconomics is so small, it just one thing (an individual, not the sum). But on macroeconomics, there are so large, is the sum of all of these. For example, in microeconomics, it looks at the wage in the auto industry, but in macroeconomics, it looks at the sum of wages in all industries. Also, microeconomics and macroeconomics are different on which problems they solve. That is what I mentioned before. Microeconomics solve the problem of resource allocation, that is what is produced, how to produce and whom to produce, for achieve the maximization of individual benefits. Macroeconomics researches resource utilization issues in the social sphere to achieve the maximization of social welfare. Moreover, the research methods are different between microeconomics and macroeconomics. The microeconomics method is analysis the sum of the amount. The macroeconomics method is analysis the total amount and the average amount, it can reflect the whole economic operation of the decision, changes and their mutual relations. Also, microeconomics concerned with household income. But macroeconomics concerned with national income.

Distinction between microeconomics and macroeconomics is not so strictly fixed. Many economic situations are both involving the microeconomic and also the macroeconomics. For example, the overall level of enterprise to invest in new machinery and equipment, it can help the speed of economic growth. That is a macroeconomic issue. However, to understand the business decision for purchase how many new machinery and equipment, we have to analysis the individual enterprise first. That is a microeconomic issue. Microeconomics is focus on a single economic unit, such as household and manufacturers. Macroeconomics study the economy as a whole, it analysis the economic issues on the total amount.

Generally, in my opinion, the mainly different that between microeconomics and macroeconomics is economics in the small and economics in the large.

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