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Microeconomics vs Macroeconomics

By honeymochakiss Jan 04, 2011 1340 Words
Economics and financial management consist of two major components: microeconomics and macroeconomics. These two components are interchangeable and act as the foundation to the core concepts to understanding the enormous arena of the financial world. Macroeconomics can be defined in several business terms, but simple put, it is the branch of economics that studies the economy of consumers or households or individual firms. Microeconomics basically deals with the choices and assessments made by businesses that look at the best interest of allocation resources, while determining the prices of good and services. In the long run economic growth increase GDP. Taxes, government and policy should all be taken into consideration when referring to microeconomics, because it looks specifically at how these things help increase and capitalize on its productive and capacity. On the flip side, macroeconomics looks at the overall behaviors of economics, not only from a business perspective, but on an industrial and financial system known a Gross National Product (GDP). Examples of how GDP affects the economy would be the continuing strain of the unemployment crisis affecting the nation. While both Micro and macro economics are very different, they are work interchangeably as they overlap in the business field on many occasions. Micro and macro economics provide essential for any finance expert. It remains an ongoing challenge in this evolving economy for businesses to stay afloat while trying to maintain competition and increase revenue. While businesses remain on the balance ball, the dichotomy of understanding economics is critical in order to stay competitive and triumphant in the market. There is a great deal of assistance available in these times to foster the economic decisions that will contribute to the rise and/or decline of income versus demand. The prices of elasticity of demand takes into account the rate of response of quantity demand due to a price change. If the incomes of the customers for the goods or services were to increase by 10%, would the expectation be that demand for it to increase by more than, less than, or about 10%? In this scenario the price of elasticity of demand is a unit less number that is calculated by dividing the proportionate change in quantity demanded by the proportionate change in the price. Further in order to decide whether or not the increase or decrease price would continue to increase the revenue would depend solely on the demand curve. After the price elasticity of demand is estimated, it can be compared to the range of value and the demand curve to see calculations based on an increase or decrease of price. The ration of percentage changes in quantity demanding response to the percentage change in price. Price elasticity = Proportionate change in amount demanded Proportion change in price = Change in demand +Change in price

Amount demanded Price
On the flip site, let’s assume the foundation of the question. Is the ultimate objective to increase the company’s revenue? It is rare that demand increases equally with the share price. Indeed, if this is the case then the ultimate object of any company would be to maximize profit, but it is clear that “maximizing profit” is defined in economic terms. The law of price and demand remain closely linked in lieu of qualitative reports that elasticity of demand is the concept in which the degree of demand to change in the market place. As a result, there are demands in correlation to a significant change in the price on a specified demand curve. Further confirming the price of elasticity of demand quantifies quantity demanded on a particular commodity’s change in price. The price of gas and oil in the United States has had a tremendous on the economy causing an increased spike in GDP growth. With the method of calculating GDP so fundamentally revised and every macroeconomic data point restated, every macro relationship must be reestimated (Fleming). It has been comprehensible the new cases in understanding the methodology of GDP. The primary intent of GDP is to somewhat easy and multifaceted; that is show an increase in the market value of new products and goods that circulate throughout the United States. There are three major goals of economic growth: to increase real GDP, fulfill employment rate with less than 5% unemployment and provide price leveled stability. The questions remains persistently, how do we elevate economic growth? In order to increase economic grow there must be a massive increase in quality goods and service, by producing full employment that will enable job, economic efficiency that will provide accessible productive resources, price-level stability to ensure avoid large upswings and downswings in the general price level; that is, avoid inflation or deflation. In addition, here are a few more enormous growth tactics that may incorporated that may be complementary to economic growth such as guarantee economic freedom, equitable distribution , economic security, and balance of trade. These objectives all remain beneficial to economic growth and development because although difference strategies it will provide may additional support to businesses and consumers to conduct those economic activities that will generate equitable income, while seeing that no over faces poverty or loss of wages even in time that the financial state of this country remains somewhat questionable. According to Bruce Van Cleve, operator of 10 Minute Payroll, Inc., states, “one of the most important things a business owner learns (hopefully learns, because some never do) is that there are consequences to the changes in sales and expenses that happen in your business.” For many business owners this is a difficult consequence because many do not see how bad business habits and inadequate bookkeeping can put their company in a position to work harder not smarter. For the most part it is for the benefit of the business to produce these statements and make it available publically because it says that a company is secure in their business practices and the numbers will speak for themselves. Companies often make available to investors and the general public financial statements that indicate the firm’s financial position at some point in the past. (Garger, 2008) With any business, there are advantages and disadvantages that contribute to rise and fall of a company’s growth and development. Nonetheless, some of the advantages remain essential in budgeting, business planning and raising additional funds for a growing business. For companies that produces statements on a regularly on monthly, quarterly, and yearly basis, it gives a snapshot of the expenses, gains and/losses in a more elastics timeframe ultimately assisting in the planning and management for consideration of future financial endeavors. On the contrary, there are limitations as well such as the use of estimates when exact figures are not known; certain items like land and depreciation are not adjusted to show the impact of inflation; and the fact that financial statements do no reflect opportunity cost. (Marshall, 2008)

Even though there was a decrease that demand remains the same. The producer need not increase or decrease the prices of the product to bring change in the demand. Today, due to the economic time faced, many business and consumers are watching ever penny as way to cut cost, therefore both micro and macro economics is not to been seen as inclusive or so compartmentalized that the aspect of economics is embedded within these two components. Ultimately, it is all about numbers and how to make those numbers add up. If it don’t make sense it can’t make sense.

Baldwin, N., & Borrelli, S. (2008). Education and economic growth in the United States: cross-national applications for an intra-national path analysis. Policy Sciences, 41(3), 183-204. doi:10.1007/s11077- 008-9062-2.v

Fleming, M. (1996). The statistics corner: The GDP revisions and understanding sluggish productivity growth. Business Economics, 31(2), 62. Retrieved from Business Source Complete database.

Graham, Jim., The Income Statement Understanding financial statements without an accounting degree. May 2004

Garger, John., Financial Statement Basics: The Cash Flows Statement. Financial Statement Basic. Dec. 19, 2008

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