Differences between Macroeconomics and Microeconomics
In economy, as in all sciences, we must establish different sections so that when studying it is easier and more organized. The first division usually done is to distinguish between microeconomics and macroeconomics. So you won't have any trouble understanding them and to help you study economics, on oneHOWTO we explain the differences between microeconomics and macroeconomics.
What is macroeconomics
Macroeconomics is the part of the economy that is responsible for studying the economic performance in general and economic policies carried out on a large scale, for example in a country. That's to say it encompasses the running of society as a whole , not as individual markets. The prefix macro comes from ancient Greek and means "big", which is why it is said that macroeconomics precisely studies economy on a big scale. Macroeconomics focuses on the following subjects:
- Gross Domestic Product (GDP)
- Total economic output
- International trade
- Economic national policies
For more information on the subject, take a look at our article on the basics of macroeconomics.
Some of the most used variables are gross domestic product, unemployment, tax levels or interest levels, among others. Macroeconomics does not only focus on businesses but also in other aspects of economy such as exports, stock exchange, inflation rates and studies how it may affect the economy of a certain country or region as a whole.
What is microeconomics
Microeconomics is the part that deals with the behavior of each operator individually, such as families, businesses or workers. So you remember it clearly, just remember that "micro" is a Greek prefix that can be translated as "small".
It exhaustively analyses laws such as supply and demand, between consumers and suppliers, the price level, wages or the elasticity of each product. That is to say, how to reach an agreement between the needs of consumers and the businesses that offer goods and services, as well as all the "psychological" variables that they can affect, such as product quality or the different needs of each person; all with the aim to maximize their profit and make sure business goes well. Take a look at the aspects studied by microeconomics:
- Consumer behavior
- Profit maximization
- Government regulations on specific markets
- Side effects of markets and other external relations
For more information, take a look at how microeconomics affects businesses.
Microeconomics have to take into account taxes and economic policies created by the government too, which is why politics has a big impact on microeconomics and small/medium businesses.
Differences between macroeconomics and microeconomics
From the above definitions we highlight several differences that help us distinguish them:
- Macro looks for a general perspective and micro for an individual perspective.
- The first of these studies economic actors overall, such as a country, and the second studies specifics, such as a consumer.
- The variables used are very different, for example in macroeconomics the GDP observes the total production of a country and microeconomics observes the amount produced by a single company.
- There are situations that affect macroeconomics but not microeconomics and vice versa. For example, a really cheap new car model affects microeconomic variables but not macroeconomic variables.
- Although they are very different, they are not totally independent and we need both to understand the economy and need to be studied and taken into account when working in any economical sector, as one may affect the other. For example, devaluation affects both macro and microeconomics, inflation of macroeconomics will also affect microeconomics, the MPC also affects macroeconomics too.
- Macroeconomics principals are taken into account in microeconomics, as they have similar economic principles when it comes to studying the effect of devaluation on businesses and how it will affect demand.
Take a look at our article on how inflation affects the economy for more information.
How are macroeconomics and microeconomics related?
As we've seen above, macroeconomics could not exist without microeconomics, and there are several aspects that entwine and need to work together in order to be efficient.
The individual choices of each household or company that are made due to microeconomic factors can in the whole affect macroeconomics in the long run. In the same way, a policy that involves microeconomics may affect the way that households and businesses deal with their economy, thus noticing a change in consumer behavior and therefore microeconomics too.
If the government files a bill in which they raise taxes on a certain product (macroeconomics), an individual retailer will have to increase the price; which in turn may affect the consumer, as a raise in a product the consumer used to buy may act as a deterring agent for the consumer to stop buying it as they won't be able to afford it any longer (microeconomics).
If you want a reverse example, if many people stop purchasing certain product (say apples for example), this will affect many apple farmers across a country, which is why the government should create a policy to instigate apple consumerism such as lowering the taxes on them or finding new markets to export the product.
If you'd like to read similar articles to Differences between Macroeconomics and Microeconomics, we recommend you browse around our Economy & business category.
- Microeconomics is concerned about a single individual in the economy, may it be an individual person, household, business...
- If you want more detailed and academic information on macro and microeconomics, we advise you to read the following authors: K.E Boulding, Gardner Ackley, J.M Keynes.