Focus: Macroeconomics And Microeconomics
The difference between micro and macroeconomics is simple. Microeconomics is the study of economics at an individual, group or company level. Macroeconomics, on the other hand, is the study of a national economy as a whole.
Macroeconomics (from the Greek prefix makro- meaning “large” and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies.With microeconomics, macroeconomics is one of the two most general fields in economics.
Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices, and the interrelations among the different sectors of the economy, to better understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance. In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets
Microeconomics (from Greek prefix mikro- meaning “small”) is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources. Typically, it applies to markets where goods or services are bought and sold. Microeconomics examines how these decisions and behaviors affect the supply and demand for goods and services, which determines prices, and how prices, in turn, determine the quantity supplied and quantity demanded of goods and services.
This is in contrast to macroeconomics, which involves the “sum total of economic activity, dealing with the issues of growth, inflation, and unemployment.” Microeconomics also deals with the effects of national economic policies (such as changing taxation levels) on the aforementioned aspects of the economy. Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon ‘microfoundations’ – i.e. based upon basic assumptions about micro-level behavior.
|Basis for Comparison||Microeconomics||Macroeconomics|
|Meaning||The branch of economics that studies the behavior of an individual consumer, firm, family is known as Microeconomics.||The branch of economics that studies the behavior of the whole economy, (both national and international) is known as Macroeconomics.|
|Scope||Covers various issues like demand, supply, product pricing, factor pricing, production, consumption, economic welfare, etc.||Covers various issues like, national income, general price level, distribution, employment, money etc.|
|Importance||Helpful in determining the prices of a product along with the prices of factors of production (land, labor, capital, entrepreneur etc.) within the economy.||Maintains stability in the general price level and resolves the major problems of the economy like inflation, deflation, reflation, unemployment and poverty as a whole.|
|Limitations||It is based on unrealistic assumptions, i.e. In microeconomics it is assumed that there is a full employment in the society which is not at all possible.||It has been analyzed that ‘Fallacy of Composition’ involves, which sometimes doesn’t prove true because it is possible that what is true for aggregate may not be true for individuals too.
Both fields of economics are interdependent
At first glance, micro and macroeconomics might seem completely different from one another. In reality, these two economic fields are remarkably similar, and the issues they study often overlap significantly.
For example, a common focus of macroeconomics is inflation and the cost of living for a specific economy. Inflation is caused by a variety of factors, ranging from low interest rates to expansion of the money supply.
While this might seem like a purely macroeconomic field of study, it’s actually one that’s very important in microeconomics. Since inflation raises the price of goods, services and commodities, it has serious effects for individuals and businesses.
On a microeconomic level, this has several effects. Businesses are forced to raise their prices in response to the increased cost of materials. They also need to pay their employees more over the long term to account for the higher cost of living.
For example, while a micro-economist might study the effects of low interest rates on individual borrowers, a macroeconomist would observe the effects that low interest rates have on the national housing market or the unemployment rate.
Micro effects macroeconomics and vice versa. If we see a rise in oil prices, this will have a significant impact on cost-push inflation. If technology reduces costs, this enables faster economic growth.
Blurring of distinction. If house prices rise, this is a micro economic effect for housing market. But, housing market is so influential that it could also be considered a macro-economic variable, and will influence monetary policy.
Is exchange rate devaluation a macroeconomic or microeconomic issue? What are the implications of devaluation on the economy? Let’s hear your comments.