Learn about the key differences between Micro and Macro Economics and gain a deeper understanding of how each branch of economics impacts the economy as a whole.
Microeconomics and macroeconomics are two basic types of classification in economics.Microeconomics is a branch of economics that studies the interaction of individuals in producing and consuming products in a company. While macroeconomics is a branch of economics that studies the whole.
Understanding the Difference Between Micro and Macro Economics.
Microeconomics involves various theories such as distribution, price and product. While macroeconomics focuses on income, output, the possibility of inflation and deflation and others.
Macroeconomics seeks to explain why at some times as little as 3 percent of the labour force is unemployed and at other times as much as 9 percent or even -more, and why at some times there is full utilization of the economy’s productive capacity as measured by its workers, factories, equipment, and technological know – how and why at other times a good part of this capacity goes to waste.
It also seeks to explain why the total of goods and services produced grows at an average rate of 4 percent per year in one decade and at an average rate of 2 percent in another, and why in some time periods the price level rises sharply, whereas in other it remains stable or even falls.
In short, macroeconomics attempts to deal with the truly “big” issues of economic life – full employment or unemployment, capacity or under capacity production, a satisfactory or unsatisfactory rate of growth, inflation or price level stability.
In contrast, microeconomics is concerned, not with total output, total employment, or total spending, but with the output of particular goods and services by single firms or industries and with the spending on particular goods and services by single households or by households in single markets. The unit of study is the part rather than the whole.
For example, microeconomics seeks to explain how the single firm determines the sale price for a particular product, what amount of output will maximize its profits, and how it determines the lowest cost combination of labour, materials, capital equipment, and other inputs needed to produce this output. It is also concerned with how the individual consumer determines the distribution of his or her total spending among the many products and services available so as to maximize utility.
Microeconomics asks how shifts in consumer spending from the product of one industry to that of another, or from the product of one firm within an industry to that of a competitor, will cause output and employment to be reallocated among different goods and services and among different industries and firms.
Macroeconomic theory has a foundation in microeconomic theory and microeconomic theory has a foundation in macroeconomic theory. In practice, analysis of the economy is not conducted separately in two watertight compartments. As we analyze macroeconomic variables and their relationships, we must also allow for changes in microeconomic variables that may affect the macroeconomic variables and vice versa. For example, to the extent that labor’s geographical immobility is such that workers fail to move from an area whose industry is declining to another whose industry is growing, total output and total employment may be less than they would be with more mobility.
Macroeconomics Examples
- Currency Exchange Rates
A currency exchange rate is the price of one currency in terms of another currency. The exchange rate is determined by the supply and demand of the two currencies in the foreign exchange market.
- Inflation
Inflation is a general increase in the prices of goods and services and results in increases in the prices of other goods.
- Fiscal Policy
This example of macroeconomics is government policies related to government revenue and expenditure. For example, taxes for citizens and financing of infrastructure development.
- Gross Domestic Product (GDP)GDP is the market value of all goods and services produced by a country in a given time period. GDP is one of the most important indicators for measuring a country’s economic performance.
- Monetary Policy
This policy is taken by the central bank in the form of controlling the amount of money in circulation and setting interest rates. The goal is to achieve macroeconomic stability.
Microeconomics Examples
Demand and Supply of Goods
Demand is the amount of goods or services that consumers want to meet their needs. While supply is the amount of goods or services that producers want to sell.
Production Decisions
This decision is made by producers to determine the quantity and quality of goods or services to be produced. Production decisions will be influenced by demand, production costs, and competition.
Consumer Decisions
The decisions consumers make to select, purchase, use, and dispose of goods or services to satisfy their needs and wants.
Labor Market
The place where labor supply and demand meet. Labor supply comes from job seekers, while labor demand comes from employers.
Thus the explanation of the differences between micro and macro economics to better understand how the economy works. Many factors are needed to support the national economy, including reliable telecommunications.