Interdependence between Microeconomics and Macroeconomics

Interdependence between Microeconomics and Macroeconomics
Microeconomics
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Management Notes

Macroeconomic theory has a foundation in microeconomic theory and micro economic theory has a foundation in macroeconomic theory. Microeconomics and macroeconomics are just like the two sides of the same coin. We cannot analyse the individual behaviour without the assuming to aggregate and likewise aggregate cannot be effective unless individual variables are kept under considration. Microeconomics is the study of individual parts of the economy whereas macroeconomics is the study of the economy as a whole. But, these two approaches are not competitive but complementary to each other.

Microeconomics is dependent on macroeconomics. For each and every microeconomic problem there involves a macroeconomic analysis. For e.g . When the firm employ labor what amount he should pay for the labor relates to a particular firm so it comes under microeconomics. But the wages of one firm are related to and depend upon wages of other firms in the locality. Thus, every price, every wage, every income is dependent in some way or the other, directly or indirectly upon the prices all other products, wages of all workers and income of all individuals in the economy.

Macroeconomics is dependent on microeconomics. The proper idea of working of the entire economic system is only possible through the study of individuals, households, firms and industries. The sum total of all individual firms’ production constitutes the output of the entire economy. The sum total of all individuals’ incomes is known as national income. In fact, we cannot understand the working of an economy unless we study the principles and the motives which govern the behaviour of individuals, households and firms. Thus, we cannot attain a complete understanding of the economic system unless we integrate the two approaches in a judicial manner. Ignoring one and concentrating attention on the other alone may often lead not only to a proper understanding about the economics.

From the above analysis we can clearly see that both microeconomics and macroeconomics are interdependent. Gardner Ackley says,”The relationship between macro-economics and micro-economics and theory individuals behavior is a two ways street.On the one hand,micro-economics theory should provide the building blocks for our aggregates theories. But macro-economics may also contribute to micro-economics understanding”.