Microeconomics and macroeconomics are considered as the most important division of the broad range of economic concepts. Economists use different methods to analyses economic issues. The standard of modern economies is discussed as positive economics and normative economics. In positive economics, different economic issues are described based on the existing situation based on the facts, and in normative economics, the values of economics are focused.
Microeconomics and macroeconomics are two other ways that economists look at the behavior of the economy. The micro-study is the method of analyzing something in detail based on the available facts and theories. It is a study of specific factors. In microeconomics, the behavior of individual markets is studied in detail. It does not try to answer or explain what factors should take place in a market. It explains what happens under certain circumstances based on the facts and theories. Some of the key principles that microeconomics involves can be identified, but it is not restricted only to these areas.
- Demand and supply equilibrium – based on the demand and supply theories it explains how the market price is determined.
- Production theory – the study of the motivating factors of producers.
- Cost of production – the study of the importance and the determinants of factor prices or the behavior of the factor market.
- Labor economics – the study of the labor market. How the wage rates are determined, the influencing factors in determining wage rates are discussed based on available theories.
Macroeconomics is the method of studying the behavior of the whole economy and its implications to different sectors. For example, it studies how the changes in aggregate demand or aggregate supply affect the general price level, inflation, living standards, national output, etc.. it does not focus on any specific segment of the economy. Because of this, the governments rely on macroeconomics when formulating economic policies.
Differences between microeconomics and macroeconomics
Some of the major differences of microeconomics and macroeconomics can be identified.
- The area of study – Microeconomics involves individual markets such as the behavior of consumer market, factor market, labor market, etc. Macroeconomics focuses on the overall performance of the whole economy such as the changes in the GDP.
- Price changes – microeconomics involves price changes in goods and services in individual markets but, macroeconomics observes the changes in the general price level or Inflation.
- Microeconomics explains the demand and supply of individual labor market and the determinants of wage rates, but macroeconomics observes the reasons and the effects of unemployment on the whole economy.
- Microeconomics discusses individual consumer behavior and macroeconomics focuses on the aggregate demand in the economy.
- Microeconomics centers on the supply of goods to the market but microeconomics the productive capacity of the economy is discussed.
- Macroeconomic studies focus on the reasons for the differences in the living standard of the people, level of the income distribution, economic growth between countries, etc.
- In addition, public finance, international trade are also the areas only macroeconomics involves.
- There is a little debate about the principles of microeconomics but macroeconomics is more controversial. Different schools of thought have come up with different explanations. (Keynesians, Monetarists, Australians, etc.)
- Macroeconomics is based mainly on empirical data and tries to explain them. But microeconomics works no the theories.
Though microeconomics and macroeconomics studies are two different aspects of observing economic behavior, both are equally important in evaluating the performance of the economy. It is important to understand the different aspects of microeconomics and macroeconomics for a better understanding of different economic theories.