Clarity on Micro and Macro Economics

Microeconomics and macroeconomics are the two basic divisions of economics. Microeconomics is the study of particular economic divisions and markets. It examines consumer behaviour, individual labour markets, and firm theory. Macroeconomics is the study of the entire economy. Aggregate factors such as national output, inflation and aggregate demand are examined in macroeconomics.

Microeconomics

Microeconomics refers to the economic issues that are examined considering small economic units like an individual consumer or an individual patron. From the perspective of an individual economic unit (producer or consumer), the fundamental economic problem is the problem of choice related to the allocation of scarce resources to alternative uses.

A consumer always wants to allocate his given income to the purchase of different goods and services. His purpose is to maximise his satisfaction. Economists formulate theories or a set of principles describing consumer actions (called the theory of consumer actions or theory of demand). Demand for goods and services and consumers’ choice on the allocation of their income to different uses are the principal issues we study in the theory of consumer behaviour. It’s an important element of microeconomics.

When studying the theory of demand (relating to consumer’s actions) and the theory of supply (relating to producer’s actions), we cannot ignore studying the market for goods and services (called commodity market) and market for factors of production like labour and capital (called factor market). Microeconomics deals with the study of how prices for goods and services are determined in the commodity market and how prices for factors of production are determined in the factor market. Theories that help in degerming market price are called price theories. These are vital factors of microeconomics.

Macroeconomics

Macroeconomics refers to the study of economic problems as a whole. The introductory problem continues to be the problem of rational operation of scarce resources, as in microeconomics. However, unlike microeconomics, the focus shifts from the maximisation of individual gains to the maximisation of social interest. The central issues in macroeconomics relate to the overall position of employment, growth rate of public affairs, the general price position, and stability of the economy.

Macroeconomics begins with the study of macroeconomics variables such as aggregate demand and aggregate supply. It analyses how the equilibrium position of output is struck (where aggregate demand = aggregate supply). Departure from the full employment equilibrium position of output is analysed as the problem of inflationary gap or deflationary gap in the economy. Fiscal and monetary programs are studied as measures to combat the situation of affectation and deflation. Also, issues related to exchange rate and balance of payment are studied to assess their impact on the domestic economy.

Differences between microeconomics and macroeconomics

Conclusion-

Microeconomics and macroeconomics are related to the study of economic behaviour, although the magnitude of the issues addressed differs. Microeconomics is the branch of economics that studies individual, home, and business economic behaviour. In comparison, macroeconomics has a broader perspective and examines economies on a much greater scale—national, continental, regional or even global. Although these two fields of economics appear to be distinct, they are interrelated and complementary.