Difference between Microeconomics and Macroeconomics

What is Economics?

Economics is that branch of knowledge in which those activities of human beings are studied which they undertake to acquire scarce means to satisfy their unlimited wants.

Economics is a science of human behavior concerned with the allocation of scarce means in such a manner that consumers can maximize their satisfaction, producers can maximize their profits and society can maximize its social welfare.

Scarcity and Choice is the essence of Economics

Imagine yourself as the richest person on the Earth.  

Can you get anything you wish to get any time?

Certainly not!

Thus, no matter how many resources you have, these must be scarce in relation to your wants.

What is Scarcity?

It refers to the situation when what you have is less than what you wish to have.

In other words, it implies a situation when the supply of resources is less than the demand for resources.

What is Choice?

It refers to the process of selection from available Limited alternatives it emerges because of two reasons first one is resources are scarce and resources can be allocated to alternative uses.

Microeconomics and Macroeconomics

When the problem of choice is studied at the level of individuals it is called microeconomics.

When the problem of choice are studied at the level of the country as a whole  is called macroeconomics.

Microeconomics

Microeconomics studies the economic activity of an economic unit like demand for Salt by an individual household or economic activities of a small group of economic units like demand for Salt by all the households.

Microeconomics includes the study of demand theory, price determination, production theory, and factor pricing.

Microeconomics is the social science that studies the implications of incentives and decisions, specifically about how those affect the utilization and distribution of resources.

Microeconomics shows how and why different goods have different values, how individuals and businesses conduct and benefit from efficient production and exchange, and how individuals best coordinate and cooperate with one another.

Example: Individual market, Effect on price of a good, Individual labor market, etc.

Macroeconomics

Macroeconomics studies economic relationships or economic problems at the level of the economy as a whole.

The study of macroeconomics assumes that micro variables remain constant, e.g.it is assumed that distribution of income remains constant when we are studying the determination of aggregate output and income level.

Example: Macroeconomics deals with aggregates such as national income, total employment, general price level, etc.

Some of the points of difference between Microeconomics and Macroeconomics

Microeconomics is the study of individual economic units of an economy such as individual household individual firms and industry whereas macroeconomics is the study of an economy as a whole that is the study of broad economy-wide aggregates for example when the study and individual car manufacturing firm our study is micro analysis but if we study the entire car manufacturing sector of the economy our analysis is macro analysis.

Similarly, if we study the production of a firm our analysis is micro study but if we study problems of the production of the whole economy our analysis is micro study the former is like dealing with individual trees in the economic forest whereas the latter is like analyzing the economic forest.

MicroeconomicsMacroeconomics
Microeconomics is the study of an individual economic unit of an economy.It is a study of the economy as a whole and its aggregate.
It deals with individual income individual prices individual output etc.It deals with an aggregate like national income, National output, etc.
Its central problem is price determination and allocation of resources.Its central problem is the determination of the level of income and employment.
Its main tools are the demand and supply of a commodity.Its main tools are aggregate demand and aggregate supply of the economy as a whole.
It helps to solve the central problem of What how and for whom to produce in the economy.It helps to solve the central problem of full employment of resources in the economy.
It discusses how the equilibrium of a consumer or a producer is attained.It is concerned with the determination of the equilibrium level of income and employment of the economy.
Price is the main determinant of microeconomic problems.Income is the major determinant of macroeconomic problems.
Examples are Individual income, Individual saving, price determination of a commodity, Individual firm’s output, and consumer equilibrium.Examples are national income, National Savings, general price level, aggregate demand unemployment, etc.

The following points explain the importance of microeconomics:

1. Price Determination

It explains how prices of individual commodities are determined and how rewards of factors of production are determined and distributed.

2. Business Decision making

Microeconomic theory help businessman to determine their price policy a maximum level of output and achievement of maximum productivity from factor combination.

3. Business and production planning

The microeconomic policy helps in preparing and planning business policy, expansion of business, and making investment decisions to achieve maximum output and productivity.

4. Helps in International Trade

Microeconomics is used to explain gain from internal trade, external trade, foreign exchange, and in the determination of exchange rate.

5. Basis of welfare economics

 The entire structure of microeconomics has been built on the basis of a price theory which is an important constituent of microeconomics.  it is suggested the condition of efficiency and explains how it can be achieved.

The following points explain the importance of Macroeconomics:

1. Functioning of an economy

Macroeconomic analysis is of paramount importance in getting us an idea of the functioning of an economic system.

It is very essential for proper and accurate knowledge of the behavior pattern of the aggregate available as a description of a large and complex economic system is impossible in terms of numerous individual items.

2. Formulation of Economic policies

Macroeconomics is of great help in the formulation of economic policies government does not deal with individuals but with grooves and masses of individuals thereby establishing the importance of macroeconomic studies.

3. Understanding and Controlling Economic Fluctuations

Economic fluctuations are a characteristic feature of the capitalist form of society the theory of economic fluctuations can be understood and built up only with the help of microeconomics for here we have to take into consideration aggregate consumption aggregate savings in the economy.

4. Inflation and Deflation

The macroeconomic approach is of utmost importance to analyze and understand the effect of inflation and deflation. Different sections of society are affected differently as a result of changes in the value of money.

5. Study of Economic Development

As a result of Advanced study in macroeconomics,  it has become possible to give more attention to the problem of development of underdeveloped countries.

The study of macroeconomics has revealed not only the glaring inequalities of wealth within an economy but has also shown the vast differences in the standard of living of the people in various countries necessitating the adoption of important steps to promote their economic welfare.


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