Difference Between Micro and Macro EconomicsI am going to explain to you the difference between Microeconomics and macroeconomics.
So friends let's get started now.
First of all, we are going to understand the term Economics.
|Difference Between Micro and Macro Economics|
What is Economics?
Economics is dag branch of knowledge which studies the processes through which the resources data-scarce in nature are allocated to satisfy our most pressing unlimited wants in other words it studies the way we work together to transform the scarce resources into valuable and usable goods and services so as to satisfy the human wants.
What is an example of emicroeconomics and macroeconomics?
How many branches of Economics?
There are two branches of Economics
We will understand the term Microeconomics.
What is Microeconomics?
Microeconomics is the branch of economics that studies individual units such as a consumer household from industry and price of a product.
Microeconomics examines how scarce resources are to be allocated among people efficiently so it covers product pricing consumer behavior factor pricing forms behavior and industry allocation.
What is Macroeconomics?
Macroeconomics is the branch of economics that deals with the economy as a whole instead of individual aspects. Hence, here we are going to study the behavior of larger economic variables as in
1. Total consumption
2. Total investment
3. Total savings etc
So it analyzes the environment was in the forms households consumers and government takes decisions.
What are the tools of macroeconomics?
1. National income
2. General price level
3. Employment level
4. Inflation rate
5. Level of savings and investment
6. Balance of trade and balance of payment
What is the difference between macro and microeconomics?
Microeconomics versus Macroeconomics
The study of Economics is divided into two major branches Microeconomics and Macroeconomics.
Microeconomics comes from the Greek word my cross meaning small. Microeconomics deals with the behavior of individual actors in the economy, it can mean one consumer one household one firm or even one industry some questions we aim to answer in Microeconomics are if price of cars go up what happens to consumer demand if income levels of people increase whole demand for meat change.
So Microeconomics deals with the individual parts of the Economy when you hear Microeconomics things small
Macroeconomics comes from the Greek word macros meaning big.
In macroeconomics, we are interested in the economy as a whole.
For example the country's unemployment rate changes in prices of goods or inflation, national income which is often referred to as GDP. Some questions we try to answer in macroeconomics are
What happens if the money supply increase?
What causes the economy to grow over time?
So, in a nutshell, Macroeconomics studies the economy as a whole when you hear Macroeconomics thinK big
You know what microeconomics and macroeconomics are interrelated to understand macroeconomics we've got to understand microeconomics. For instance, a typical question we ask in macroeconomics is when interest rates go down how would you repeat change to answer this question we need to first understand microeconomics how will consumer response to an interest rate drop we all consumer start saving less how will a firm respond to an interest rate drop will firm start investing more once we understand the behaviors of individual agents we can then understand the economy as a whole.
The key difference between micro and macro Economics
Microeconomics is a branch of economics deals with the performance and behavior of individual economic units and variables like a firm, family, consumer, etc.
Macroeconomics is the branch of economics deals with the economy at large and lays focus on aggregate variables like poverty, gross income, international income, fiscal policies, and so forth.
Application in business
Microeconomics theories apply to internal and operational issues. Macroeconomics theories apply to environmental and external issues.
Microeconomics deals with various issues such as demand, supply, production, product pricing, factor pricing, economic welfare, consumption, etc. Macroeconomics deals with issues such as national income, distribution, employment, general price level, money, etc.
Microeconomics helps in estimating prices of commodities concerning various factors of production, such as land, labor, entrepreneur, capital, etc. as present in the economy.
Macroeconomics is useful for maintaining stability in the overall price levels in the economy. It holds significance in resolving major economy-related issues such as deflation, reflation, inflation, unemployment, poverty, and so forth in the whole economy.
Microeconomics finds its roots in unrealistic assumptions. For instance, microeconomics assumes that a full employment situation exists in society; this is untrue and impossible. In macroeconomics, it has been assessed that the 'Fallacy of Composition' is involved. In some cases, this proves to be untrue as it is possible that what’s shown for aggregate variables may not hold ground for individuals too.
While determining the behavior of any economy, microeconomics is known to adopt a bottom-up approach. In macroeconomics, a top-down approach holds prominence and is taken into consideration while dealing with various aggregate variables.
Determination of prices
Microeconomics helps in determining the price of any particular commodity concerning the price of substitute and complementary goods. Macroeconomics is useful in determining and maintaining the various aspects of the general price level.
What does it study?
Microeconomics studies the behavioral patterns of particular markets as well as their related segments in any economy. It deals with consumer behavior, the theory of firms, individual labor markets, etc. Macroeconomics studies the economy as a whole. It works with aggregate variables like national output, aggregate demand, inflation, etc.
Level and scale of performance
In comparison to macroeconomics, microeconomics deals with different areas of economics at a smaller size. Given the same formulas and principles for solving issues, macroeconomics deals with the study of large-scale economic problems.
Microeconomics is also referred to as the price theory. This is because it defines the process of economic resource allocations based on the relative pricing of different goods and services. Macroeconomics is also referred to as the income theory. This is because it defines the changing levels of the national income of any defied economy across a period.
Area of performance
Microeconomics handles the flow of different factors of production that flows from a single owner to the individual user of the defined resources. Macroeconomics handles the circular current of income and expenditure that impacts different sectors of the overall economy.
Development of policies
Microeconomics helps in the development of policies as well as the appropriate distribution of resources at the firm level. Macroeconomics helps in the development of policies and the appropriate distribution of resources at the broader economic level; for instance, inflation, unemployment levels, and so forth.
Difference between micro and macro EconomicsMeaning
Microeconomics deals with individual units and the effect of individual decisions regarding the allocation of scarce resources on the other hand macroeconomics deal with aggregate or large-scale units that are the structure behavior and decision making in an economy as a whole.
The term micro is originated from a Greek term micro which means small or tiny.
Conversely, the word macroeconomics is derived from a Greek term macro which means large.
Microeconomics is concerned with single economic variables such as
individual demand, price, consumer behavior, etc on the other hand macroeconomics is the study of aggregates. So here the subject matter is national income, aggregate savings, aggregate output, etc
Microeconomics helps in coping with central economic problems such as price determination, and allocation of resources on the other hand macroeconomics helps in determining the level of income and employment lastly
When it comes to the importance
Microeconomics ascertains the price of a product and other factors of production conversely macroeconomics helps in maintaining stability in the general price level and resolves the major economic problems such as inflation, deflation, unemployment, and poverty as a whole.
Well, guys, this brings me to the end of this lesson I hope you find the lesson very useful I am sure that all your doubts regarding the difference between micro and macroeconomics are cleared now.