Micro and Macro Economics

MICROECONOMICS | MACROECONOMICS | As the term “micro” imply, microeconomics facilitates decisions of smaller business sectors.Micro Economics studies the problems of individual economic units such as a firm, an industry, a consumer etc.Micro Economic studies the problems of price determination, resource allocation etc.While formulating economic theories, Micro Economics assumes that other things remain constant.The main determinant of Micro Economics is price.Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize it's production and capacity so it could lower prices and better compete in its industry.Micro economics deals with economics on a much smaller scale. It could be an individual person, a group of people, or a section of a city.According to comedian P.J. O’Rourke, “microeconomics concerns things that economists are specifically wrong about.To be more technical, microeconomics is about money you don’t have .Microeconomics focuses on the market’s supply and demand factors, that determine the economy’s price levels.Microeconomics facilitates decision making for smaller business sectors.Microeconomics concentrates on the ‘ups’ and ‘downs’ of the markets for services and goods, and how the price affects the growth of these markets. An important aspect of this economy, is also to examine market failure, i.e. when the markets do not provide effectual results.Market is the central concept in micro-economics.In this study, the mechanism by which scarce resources, goods are allocated by the free upward movement of prices in accordance with the dictates of the forces of demand and supply. The assumption is that the market conditions are perfect.It mainly studies price determination and resource allocation.Moreover, it deals with actions of an individual in an economic world e.g. how an individual consumer makes spending decisions given a limited budget set and budget constraints.Consequently, it determines the relative prices of goods and services. The main assumption is that the market is competitive and perfect.Other Objectives of micro-economics: - Effects of tax on the income and, their relation on how they affect consumption by consumers.- Utilization of the budget sets and constraints in their utilization to achieve indifferences curves.- Assists consumer to distinguish between substitutions and income effects. | As the term “macro” imply, macroeconomics focuses on entire economies and industries.Macro Economics studies economic problems relating to an economy viz., National Income, Total Savings etc.Macro Economics studies the problems of economic growth, employment and income determination etc.In Micro Economics economic variables are mutually inter-related independently.In Micro Economics economic variables are mutually inter-related independently.Macroeconomics, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross National Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels.For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by unemployment rate. Macroeconomics deals with the economy as a whole. It involves the slowing and growth of the economy as a whole. The whole could be a state or a country.According to comedian P.J. O’Rourke, “macroeconomics concerns things economists are wrong about generally.Macroeconomics is about money the government is out of.Macroeconomics is a vast field that concentrates on two areas, economic growth and changes in the national income.Macroeconomics focuses on unemployment rates, GDP and price indices, of larger industries and entire economies.Macroeconomists make different types of models, and relationships, between factors such as output, national income, unemployment, consumption, savings, inflation, international trade, investment, and international finances. It considers the relationship between broad economic aggregates such as national saving, total volume of savings, total investment, total consumption, total expenditure, employment and money supply.Its main goal is to determine levels of national output, inflation ,unemployment and how each of these variables are interrelated with each other, how their impacts can be corrected using appropriate macro-economic measures like bank rate policies, open market operations and wage adjustment.In macro-economic theory, unemployment and inflation are identified and corrected.In Macro-economics, it also seeks to study international trade through an open economy where a given country trades with the rest of the world to determine the Gross national Product, Balance of trade, Balance of payments, etc.Other objectives of macro-economics:- Determination of price stability.- Finding out if there is exchange stability.- Increase in capital accumulation.- Helps in promoting higher employment level through better economy prioritization.- Ensures there is fair distribution of national income.- For purposes of achieving desirable level of consumption. |