An economy is primarily divided into two categories - microeconomics and macroeconomics. Microeconomics is the study of the economy on an individual level. Contrarily, macroeconomics observes a nation’s economy as a whole, including its performance, structure, and future direction.
Micro and macroeconomics are interdependent to some extent. Several differences also exist between these two segments of economics.
Microeconomics focuses on the choices made by individual consumers as well as businesses concerning the fluctuating cost of goods and services in an economy. Microeconomics covers several aspects, such as –
Supply and demand for goods in different marketplaces.
Consumer behaviour, as an individual or as a group.
Demand for service and labour, including individual labour markets, demand, and determinants like the wage of an employee.
One of the main features of microeconomics is it focuses on casual situations when a marketplace experiences certain changes in the existing conditions. It takes a bottom-up approach to analyse the economy.
Macroeconomics studies the economic progress and steps taken by a nation. It also includes the study of policies and other influencing factors that affect the economy as a whole. Macroeconomics follows a top-down approach, and involves strategies like –
The overall economic growth of a country.
Reasons that are likely to influence unemployment and inflation.
Fiscal policies that are likely to influence factors like interest rates.
Effect of globalisation and international trade.
Reasons that affect varying economic growths among countries.
Another feature of macroeconomics is that it focuses on aggregated growth and its economic correlation.
There are a few differences between these two categories. Here are the primary dissimilarities –
Example of Microeconomics –
Price determination of a particular commodity.
Output generated by an individual organisation.
Individual income and savings.
Example of Macroeconomics –
National income and savings.
General price level.
Aggregated demand as well as supply.
Rate of unemployment.
The unique characteristics of microeconomics and macroeconomics form a corresponding and co-dependent relation between the two schools of economics. Factors that might directly affect microeconomic factors can also impact macroeconomics in the long run.
Similarly, State-level policies, a component of macroeconomics, can also affect individual consumers and businesses. For example, a tax hike (macroeconomics) can increase the retail price of certain products, affecting the rate of consumption (microeconomics).
Any changes in these categories have a direct impact on a country’s economy. Several factors affect it; let’s take a look –
Decision Making -
Uncontrollable external factors such as changes in interest rate, regulations, number of competitors present in the market, cultural preferences, etc. play a key role influencing an organisation’s strategies and performance. These can have a cumulative effect on a nation’s economy as well.
Economic Cycles –
Experts consider macroeconomics as a cyclic design. Higher demand level, personal income, etc. can influence price levels, which in turn can affect a nation’s economy. Contrarily, when supply outweighs demand, the cost of daily goods reduces. This pattern continues until the next cycle of supply and demand.
Price of Products and Services –
The primary goal of an organisation is to keep cost at the minimum and increase the profit margin. The cost of labour is one of the highest expenses incurring factors in microeconomics, thereby directly affecting the overall cost of production and retail.
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1. What are Microeconomics and Macroeconomics?
Ans – Microeconomics studies the economy at an individual, cluster, or organisational level. Macroeconomics is the study of the economy at the national level.
2. What is the difference between Micro and Macroeconomics?
Ans– The primary difference between Micro and Macroeconomics is that microeconomics focuses on issues regarding individual income, output, price of goods, etc. whereas macroeconomics deals with issues like employment rate, national household income, etc.
3. Example of Microeconomics and Macroeconomics?
Ans – Individual income, individual savings, price of a particular commodity, etc. will be considered amongst microeconomics. Aggregated demand, aggregated supply, poverty, rate of unemployment, etc. are considered under macroeconomics.
4. Limitations of Microeconomics and Macroeconomics?
Ans – Micro and macroeconomics are correlated with each other. Any drastic change in the critical components of one discipline is likely to have a significant effect on the other. These two fields of economy are complementary to each other, which somewhat limits the flexibility of the system.