Economics is the study of how
people use limited resources to satisfy their unlimited wants. The subject-matter of economics is divided
into two main categories - microeconomics and macroeconomics. The term microeconomics
is derived from the Greek word ‘mikros’ which means small while the term macroeconomics
is also derived from the Greek word ‘makros’ which means large. This article will explain the concept and distinguish
between microeconomics and macroeconomics.
Microeconomics
Microeconomics is the study of
particular units of an economy. It looks to individual consumers, individual
firms and small group of industries and markets. It helps to solve the three central
problems of an economy: 1) What to produce? 2) How to produce and 3) For whom
to produce? Microeconomics is concerned with:
- Theory of consumer’s behavior. (E.g. Law of diminishing marginal utility and indifference curves analysis)
- Theory of firm’s behavior. (Firms equilibrium)
- Theory of price. (Equilibrium of demand and supply)
- Theory of production. (Laws of returns)
Macroeconomics
Macroeconomics is the study of
economy as a whole, not just specific unit of an economy. It looks to the
entire industries and large-scale economic issues. Its central focus is to determine
level of national income and employment. Macroeconomics is concerned with:
- Reasons for inflation and deflation.
- Theory of international trade. (Balance of trade and balance of payments)
- Employment and economic growth.
- Fiscal and monetary policies.
- National income and output.
- Theory of consumption
- Savings and investment.
- General price level.
Difference Between Micro and Macro Economics
1. Micro means small so microeconomics
studies small units of an economy. While macro means large so macroeconomics
studies large scale of an economy.
2. Microeconomics looks to the
particular firms, particular industries, particular households, particular commodities
and individual prices, wages and incomes. On the other hand, macroeconomics
looks to national income, national output, national consumption and savings, general
price level, investment and employment.
3. The basis of microeconomics
is the demand and supply which help to determine equilibrium price in the market.
Inversely, the basis of macroeconomics is the national income, national output,
employment, general price level, and economic growth and development.
4. Microeconomics is based on
some principles to illustrate different laws, which means microeconomics applies
the technique of partial equilibrium analysis. Conversely, macroeconomics applies
the technique of general equilibrium analysis which deals with aggregate economic
variations.
5. Microeconomics is generally
known as Price Theory. While macroeconomics is generally referred to Theory of
Income, output and Employment.
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