Micro vs macro economics4/28/2023 ![]() Macroeconomics studies economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment. Macroeconomics is a branch of economics that studies how an overall economy- the market and other operations that operate on a larger scale, function. The fluctuation in demand and supply, rise or fall in prices, production, all are explained with the help of microeconomics. Normative microeconomics determines the desirability of people towards various economic programs and conditions, focusing on what "should" be. Positive microeconomics describes economic behavior and change in this behavior when certain conditions are tampered with. Microeconomics is applied in a positive or normative sense. In a perfectly competitive market, it concludes that the price demanded by consumers is the same supplied by producers. ![]() Price theory: Utility and production theory are combined to obtain the theory of supply and demand, which is used to determine prices in a competitive market. Producers look for options where they can choose a combination of inputs and also the methods of combining them that will minimize cost which ultimately leads to maximum profit-making. Production theory: This is the study of production- or the process of converting inputs into outputs. However, this is subject to the constraint of how much funds they have available with them to spend. It says, consumers will opt for those combinations of goods and services that give them maximum happiness, or we can say that are of maximum utility. Utility theory: This theory explains the behavior shown by consumers. Incentives and behavior: Microeconomics analyzes how people, either as an individual or a firm, react to different situations with which they are confronted. ![]() Microeconomics has several key concepts that are leveraged to understand the change in decisions of firms and the dynamics of the market. Microeconomics shows how and why different goods have different values, how individuals and businesses conduct and benefit from efficient production and exchange, and how individuals best coordinate and cooperate with one another. You can also take a look at our blog on Price Elasticity of Demand. This branch of economics primarily focuses on discovering which factors are contributing to the decisions of individuals and how these decisions will in turn influence the general market in terms of the price, demand, and supply of goods and services. Microeconomics is the branch of economics that focuses on the decisions of individuals and businesses over resource allocation and the price at which goods and services are traded. It takes taxes, government legislation, and regulations into consideration. We will then look at the differences between micro and macroeconomics. We will understand the definition and different concepts of microeconomics as well as macroeconomics. In this blog, we will be discussing the two branches of economics - macro and microeconomics in detail. One is the method of partial equilibrium analysis (or microeconomics), generally associated with the name of Alfred Marshall and the other is the method of aggregation (or macro-economics), associated with the name of John Maynard Keynes.” Two important methods of simplification have been developed by economists. ![]() “One of the most important skills of the economist, therefore, is that of simplification of the model. It ensures efficiency and sustainability in the use of resources. Since there are many possible ways to acquire and use resources including human labor, it is economics that ensures that the best way is chosen. You can also check out our blog on Capital in Economics. The two building blocks of economics are labor and trade. It focuses on these actions performed by humans. It also looks after the allocation of resources among individuals by a nation.Įconomics works on the assumption that humans acquire a rational behavior to achieve the optimal level of utility. When we talk about Economics as a subject, it is a social science that is concerned with the production, distribution, and consumption of goods and services. This was how macroeconomics materialized as a fresh branch of Economics, a branch that assessed the behavior and structure of the whole economy, running parallel to the conventional microeconomic approach.īefore we dive into the specifics of macro and microeconomics let’s get an idea of what Economics is first. In this paper “The General Theory of Employment, Interest, and Money” John Maynard Keynes emphasized on the necessity for dividing the Economics field into two categories.
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