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Difference Between Microeconomics and Macroeconomics

Difference Between Microeconomics and Macroeconomics – Economics | Management Notes

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Difference Between Microeconomics and Macroeconomics

Microeconomics

Microeconomics is the study of the behavior of individuals and firms related to making decisions regarding the allocation of scarce resources and the interactions between these individuals and firms. The goal of microeconomics is to understand market mechanisms that determine relative prices among goods and services and allocate limited resources among alternative uses.

In microeconomics, the conditions under which free markets facilitate the allocation of resources are explained. The study also focuses on market failure, where markets do not produce efficient outcomes. It analyzes the economy from the bottom up.

Microeconomics, then, attempts to understand human behavior and the allocation of resources. It does not decide what changes are taking place in the market, rather, it explains why those changes are taking place.

In microeconomics, the key purpose is to identify ways for companies to maximize production and capacity, so they can lower their prices and compete in their industry. Many microeconomics principles can be found in financial statements.

Macroeconomics

The study of macroeconomics involves the study of the structure, performance, behavior, and decisions of the whole or aggregate economy. Macroeconomic research focuses on long-term economic growth and shorter-term business cycles.

Macroeconomics focuses on how the policies of one nation can influence those of another. It analyzes the successes and failures of government strategies within its scope.

By focusing on a single imaginary good and what happens to it, we can usually analyze how the nation’s total production and employment are related to such factors as cost prices, wage rates, interest rates, profits, etc.

Microeconomics Vs Macroeconomics

Microeconomics is the branch of economics that deals with the study of how individual households and firms make decisions and how they interact in markets whereas macroeconomics is the branch of economics that deals with the study of economywide phenomena, including inflation, unemployment, and economic growth.

The differences between microeconomics and macroeconomics are as follows:

Basis        

Microeconomics

Macroeconomics
     
Origin Microeconomics originated from the Greek word ‘MIKROS’ which means small. Macroeconomics originated from the Greek word ‘MAKROS’ which means large.
Definition Microeconomics is the study of how individual households and firms make decisions and how they interact in markets. Macroeconomics is the study of economy-wide phenomena, including inflation, unemployment, and economic growth.
Theory Microeconomics is known as Price Theory. Macroeconomics is known as Income theory.(Policy Science).
Objective Microeconomics studies principles, problems, and policies concerning the optimum allocation of resources with maximum satisfaction. Macroeconomics studies the problems, policies and principles, BOP connection, poverty reduction, etc relating to full employment and growth of resources.
Price Microeconomics studies the relative price i.e.; the price of a particular commodity. Macroeconomics studies general price ie; the average price of goods and services available.
Equilibrium Microeconomics studies partial equilibrium analysis. It studies equilibrium at a particular point in time. It doesn’t consider other factors. So, regarded as a static analysis. Macroeconomics studies general equilibrium analysis i.e.; all variables change with time. So, it is regarded as a dynamic analysis.
Employment Microeconomics provides a full-employment equilibrium. Macroeconomics provides an underemployment equilibrium.
Limitation Microeconomics fails to take into account of aggregates. Macroeconomics fails to take into account individuals.
Subject matter The subject matter of microeconomics deals with the determination of price, consumer equilibrium, distribution, welfare, etc. The subject matter of macroeconomics studies full employment price level, national income, trade cycles, etc.
Methodology Laws of microeconomics are formulated on assumptions. The laws of macroeconomics are far from assumptions.
Scope Microeconomics has a very narrow scope that is an individual market. Macroeconomics has a very wide scope that is a whole nation.

Similarities between Microeconomics and Macroeconomics

  • Micro principles are used in macroeconomics. If you study the impact of devaluation, you are likely to use the same economic principles, such as the elasticity of demand to changes in price.
  • 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.
  • The blurring of distinction. If house prices rise, this is a micro-economic effect on the housing market. But, the housing market is so influential that it could also be considered a macro-economic variable, and will influence monetary policy.
  • There have been efforts to use computer models of household behavior to predict the impact on the macro economy.

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