- Microeconomics studies individual units, such as households and firms, analyzing their market decisions and interactions.
- Macroeconomics examines the performance of entire economies, focusing on aggregated indicators like GDP, inflation, and unemployment.
- Both fields complement each other, as micro-level behavior contributes to macro-level outcomes, and macroeconomic factors influence individual decisions.
Micro vs Macro Economics
Microeconomics is concerned with the behavior of individuals and firms in making decisions regarding allocating limited resources. It examines the workings of markets. Macroeconomics studies the economy as a whole and deals with issues such as economic growth, inflation, and unemployment. It examines aggregate economic variables.
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Microeconomics studies the income of an individual whereas macroeconomics studies about the national income.
|Parameter of Comparison||Microeconomics||Macroeconomics|
|Scope||Microeconomics concerns itself decisions of individuals and business decisions.||Macroeconomics, on the other hand, analyzes the decisions that are made by countries and governments.|
|Approach||Microeconomics adopts a bottom-up approach. It focuses on the demand and the supply and several other forces that play out in the price levels.||Macroeconomics adopts a top-down approach. Thus, it looks into the policies and decisions that influence the direction taken by other players in the economy.|
|Impacts||Any deductions drawn from microeconomics has a rather smaller sphere of influence. It mainly impacts the household level.||The deductions drawn from macroeconomics are however far-reaching. They determine the direction that the entire economy takes thereafter.|
|Applicability||The key beneficiaries of the microeconomics concepts are investors and members of the households.||As for macroeconomics, policymakers and larger corporations are the ones that gain a lot.|
|Key Concepts||Some of the main terms used in microeconomics are consumption, income, household, and markets.||As for the Macroeconomics, the main concepts applicable are taxation, GDP, economic growth rates, and employment, among others.|
What is Microeconomics?
Microeconomics engages in the study of the behaviors of individuals, firms, and households in a given area with regards to how they ‘make both ends meet.’ This branch typically touches on the marketing of goods and services and how individuals cope with their economic issues.
As part of its study, it also endeavors to look into economic tendencies and how they vary in response to how individuals and corporate entities respond to any changes in the factors of production.
For the effective study, all the players are divided into business owners, sellers, and buyers.
What is Macroeconomics?
Macroeconomics, on the other hand, looks at the economy in its entirety. It examines how the various forces interact and engage at a larger level like the region, the nation, and the entire globe.
On the whole, it examines the four core areas namely price stability, economic growth rates, full employment, and an equilibrium balance of payment.
While doing all these, the study endeavors to look into the aggregate changes that transpire in the economy with regards to inflation, gross domestic product, economic growth rates, and unemployment. Specifically, the branch of economics endeavors to ascertain how the affected entities respond to these fluctuations.
Main Differences Between Microeconomics and Macroeconomics
Microeconomics is mainly concerned with households and businesses. Macroeconomics, on the other hand, lays much of its focus on the larger entities that drive and economies like the government, banks, and other large scale private entities.
Thus, the former could as well be a subset of the latter.
Microeconomics mainly involves the study of the markets and how the individuals and firms leverage it for the sake of meeting their own needs and wants. Microeconomics on the other hand mainly focuses on the policies and fiscal steps that are implemented at the national level.
The main concern of microeconomics is the small scale, business, and the day to day consumers and how they meet their needs. As for macroeconomics, it is mainly preoccupied with the sum total activities that influence economic productivity and consumption in a given entity.
Thus it looks into unemployment, inflation and growth aspects thereof.
This describes the approach that these two disciplines employ to carry out their purposes. Microeconomics uses simple observations to tale notes and make recommendations of the best ways forwards.
Macroeconomics, on the other hand, employs complex analytic tools to study and draw conclusions from the data they come across.
In all microeconomics is mainly descriptive in the sense that it merely studies and draws observations. Under some exceptional circumstances, it also recommends the approaches to take to improve the system.
Macroeconomics, however, endeavors to remedy any issues that may exist in the economy. As such, its findings are largely curative and full of policy recommendations.
In the course of undertaking these two studies, both fields base their undertakings on various arguments and premises. Microeconomics assumes that business people are well-informed, rational, and produce their goods with the aim of maximizing profits.
Macroeconomics, on the other hand, assumes that all forces will get to an equilibrium that is beneficial to all the players in the economy.
The key areas of microeconomics are demand, supply, elasticities, competition, and production costs. Some of the most noticeable aspects of macroeconomics are national output and income, international economics, aggregate demand and supply, general price levels.
Generally speaking, marketing survey firms, small scale businesses, and would-be investors are the ones that utilize the microeconomic concepts. Large scale businesses, multinational corporations, banks, and foreign investors are the key consumers and drivers of macroeconomics.
The studies and findings of microeconomics are only relevant to the localities involved and impacted by the study. Almost no other person may derive meaning from the findings of the research. Macroeconomics tends to be widely applicable. The research findings are useful for many people and in many areas besides the local community.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.