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Microeconomics vs Macroeconomics - Head to Head Comparison

21 Feb 2019 9:21 am || 0

Macro and microeconomics are the two arms of economics.

Micro vs. Macro Economics

Basis for comparison Microeconomics Macroeconomics
Definition This branch of economics deals with the performance and behavior of individual economic units and variables like a firm, family, consumer, etc. This branch of economics deals with the economy at large and lays focus on aggregate variables like poverty, gross income, international income, fiscal policies, and so forth.
Application in business Microeconomics theories apply to internal and operational issues. Macroeconomics theories apply to environmental and external issues.
Scope Microeconomics deals with various issues such as demand, supply, production, product pricing, factor pricing, economic welfare, consumption, etc. Macroeconomics deals with issues such as national income, distribution, employment, general price level, money, etc.
Significance Microeconomics helps in estimating prices of commodities concerning various factors of production, such as land, labor, entrepreneur, capital, etc. as present in the economy. Macroeconomics is useful for maintaining stability in the overall price levels in the economy. It holds significance in resolving major economy-related issues such as deflation, reflation, inflation, unemployment, poverty, and so forth in the whole economy.
Restricted to Microeconomics finds its roots in unrealistic assumptions. For instance, microeconomics assumes that a full employment situation exists in society; this is untrue and impossible. In macroeconomics, it has been assessed that the 'Fallacy of Composition' is involved. In some cases, this proves to be untrue as it is possible that what’s shown for aggregate variables may not hold ground for individuals too.
Approach While determining the behavior of any economy, microeconomics is known to adopt a bottom-up approach. In macroeconomics, a top-down approach holds prominence and is taken into consideration while dealing with various aggregate variables.
Determination of prices Microeconomics helps in determining the price of any particular commodity concerning the price of substitute and complementary goods. Macroeconomics is useful in determining and maintaining the various aspects of the general price level.
What does it study? Microeconomics studies the behavioral patterns of particular markets as well as their related segments in any economy. It deals with consumer behavior, the theory of firms, individual labor markets, etc. Macroeconomics studies the economy as a whole. It works with aggregate variables like national output, aggregate demand, inflation, etc.
Level and scale of performance In comparison to macroeconomics, microeconomics deals with different areas of economics at a smaller size.

 

Given the same formulas and principles for solving issues, macroeconomics deals with the study of large-scale economic problems.
Theory Microeconomics is also referred to as the price theory. This is because it defines the process of economic resource allocations based on the relative pricing of different goods and services. Macroeconomics is also referred to as the income theory. This is because it defines the changing levels of the national income of any defied economy across a period.
Area of performance Microeconomics handles the flow of different factors of production that flows from a single owner to the individual user of the defined resources. Macroeconomics handles the circular current of income and expenditure that impacts different sectors of the overall economy.
Development of policies Microeconomics helps in the development of policies as well as the appropriate distribution of resources at the firm level. Macroeconomics helps in the development of policies and the appropriate distribution of resources at the broader economic level; for instance, inflation, unemployment levels, and so forth.

What is Microeconomics?

As per the definition of microeconomics, this branch of economics focuses on the performance metrics and behavioral patterns of individual units. The importance of microeconomics lies in how family, industry, consumers, firms, etc. behave and perform. Demand is of crucial significance in microeconomics as it determines the price and quantity of a given product with the price and quantity of substitute products and complementary goods. The result is aimed at making informed decisions for the allocation of limited resources and their alternative uses. Some microeconomics examples include the price of a product or service, individual demand, etc.

What is Macroeconomics?

As per the definition of macroeconomics, this branch of economics lays focuses on the performance metrics and behavioral patterns of aggregate variables. It concentrates on the issues impacting the economy as a whole. The areas covered by macroeconomics include international, national, and regional economies. It deals with unemployment, GDP (Gross Domestic Product), poverty, general price level, imports and exports, globalization, economic growth, monetary and fiscal policies, and other areas of the economy. Macroeconomists are proficient in resolving problems related to the economy, thereby enabling it to function efficiently. Some macroeconomics examples include national income, aggregate demand, and so forth.

Key difference between Microeconomics and Macroeconomics

  1. An essential point in the study of microeconomics and macroeconomics is that the former lays focus on specific market segments of the economy.In contrast, the latter concentrates on several market segments and puts a focus on the economy as a whole.
  2. Another difference between micro and macroeconomics is that while the former lays stress on individual economic units, the latter concentrates on aggregate economic variables.
  3. Microeconomics deals with the issues about how the price of particular commodities or a single one will affect its demand and supply. Conversely, macroeconomics deals with monetary/ fiscal policies, unemployment, poverty, domestic trade, and other important areas of the economy.

Conclusion:

We hope that you have gained a good insight into the meanings of and the difference between micro and macroeconomics in this article. In case you have any further questions or suggestions with regards to macroeconomics vs. microeconomics, do write to us in the Comments section below, we shall revert at the earliest.