What is the Difference between Microeconomics and Macroeconomics?

Microeconomics and Macroeconomics

Economics studies how rational people make economic decisions. The decisions can made be individuals, a firm, an industry, or even a government. Based on who is making the decision, Economics can be studied at two levels, Microeconomics and Macroeconomics.

What is Microeconomics?

In Microeconomics, the decisions of an individual economic unit or group of individuals are studied, such as the behaviour of an individual consumer, farmer, producer or firm.

In Microeconomics, we also study how these individual units interact among themselves in a specific market.

Microeconomics can be understood as getting a microscopic view of the economy.

What do we study in Microeconomics?:

In Microeconomics we study a variety topics such as

Determination of demand and supply of a particular good (let’s say ice-cream)
Determination of price of a good
Effect of price change on consumers and sellers
Consumer behaviour and equilibrium
Producer behaviour and equilibrium
Profit and costing of a firm
Labour employed in a firm

What is Macroeconomics?

Macroeconomics studies the whole economy. It studies the aggregate values of economic variables such as the National Income of a country, General Price level in a nation.

Macroeconomics can be understood as getting a telescopic view of the economy.

What do we study in Macroeconomics?:

In Macroeconomics we study a variety topics such as

Determination of aggregate demand and aggregate supply in an economy.
General Price Level of an economy
Unemployment in an economy
Trade cycles in an economy
Determination of Rate of Interest
Exports and Imports in an economy
Monetary and Fiscal Policies of the government

Key Points

In Microeconomics, the decisions of an individual economic unit or group of individuals are studied, such as the behaviour of an individual consumer, farmer, producer or firm, for example Determination of demand and supply of a particular good (let’s say ice-cream)Determination of price of a good.
Macroeconomics studies the whole economy. It studies the aggregate values of economic variables such as the National Income of a country, General Price level in a nation, for example Determination of aggregate demand and aggregate supply in an economy, General Price Level of an economy.

National Income Aggregates: Gross vs Net, Domestic vs National, Market Price vs Factor Cost

The Income of a nation can be denoted by different terms like Gross Domestic Product, National Income, Net National Income, Net Domestic Product etc. These terms may be used interchangeably in day-to-day conversations. Yet, they are conceptually different. Therefore, it is important to know these important concepts: 1. Residents and Non-Residents The concept of resident is different from citizenship. Governments classify people as residents and non-residents A person becomes the resident of a country for that/one year if: The person is residing in that country for a period of 182 days in a given financial year or more. The person is known as ‘ordinarily residing’ in that nation. Such a person may or may not be the citizen of that country. The person’s economic interest lies in that country, which means that the person carries out his economic activities (like consumption, production, investment etc) in that nation. The knowledge of residents and non-residents is required beca...

Consumer's Equilibrium using Marginal Utility Analysis

The Law of Diminishing Marginal Utility It has been observed that the desire to consume a commodity decreases as more and more units of that commodity are consumed. Therefore, every successive unit of the commodity consumed provides lesser utility than before. The Law of Diminishing Marginal Utility states that as more and more units of a commodity are consumed, the Marginal Utility derived from every successive unit of the commodity declines. This happens because psychologically, as a consumer starts to consume one unit of the good after another, the the consumers satisfaction reaches a saturation point. So, with every successive unit consumed, the additional utility the consumer derives goes on declining. Consumer's Equilibrium using Marginal Utility: Cardinal Analysis Consumer's equilibrium is that level of consumption at which the consumer is getting maximum satisfaction (benefit) while spending out of his given income across different goods and services, and has no tend...

What are Consumer Goods, Capital Goods and Intermediate Goods? With Examples

Consumer Goods, Capital Goods, Intermediate Goods After the production of a good or service, the next aim of the producer is to sell the good to the consumer. The consumer can be an individual or a firm; and the good when sold to the consumer can be consumed as it is or the good can be transformed into another good with the help of a productive process such as a machine. For example, when wheat is sold to a flour mill, it is converted into flour through the use of machinery. When a good is transformed into another good like in the case of wheat, it loses its specific characteristic during the production process. Such type of a good is known as intermediate good. When the goods are not further transformed into other goods, and are used as it is, it is known as final goods. So, the final goods are those which do not pass through any further production process or transformation and are used as it is by the consumers. The final goods can be of two types- Consumer goo...

Easy on Economics

Search This Blog