Macroeconomic and Microeconomics Differences With Examples: Microeconomics

Macroeconomic and Microeconomics Differences With Examples:

Microeconomics and Macroeconomics are two separate branches of the same field, economics. Together they help us better understand the market dynamics and economic forces that shape them. Macroeconomics deals with the aggregate performance of the economy, the industries and discusses such serious issues as inflation, unemployment and growth. Microeconomics on the study hand is solely concerned with the smaller picture. It is mainly concerned with the performance of units that make the economic whole. It economics were a big picture; microeconomics would be the pieces that complete the picture. Macroeconomics on the other hand looks at the bigger picture. When we discuss the performance of one organization e.g. IBM or Dell, we are talking into consideration the microeconomic viewpoint. But when we talk about the entire computer industry on the whole, this is when macroeconomics comes into the picture.

Basically the entire economic study is concerned with the concepts of demand and supply. They are however more keenly studied in microeconomics than macroeconomics since the latter also deals with broader issues such as inflation and unemployment plus their impact on demand and supply. Microeconomics is thus the study of allocation of resources among alternative wants and the role played by individuals in shaping the demand curve. Curwen (1990) further sheds light on the subject of microeconomics and writes: "Microeconomics is principally concerned with the behavior of individual participants in the economy. Whilst the prefix 'micro' suggests a concern with small units, not all these participants - usually referred to as economic agents - are small in any absolute sense, since as well as individuals they include firms, governments, trade unions and many other organizations. They are nevertheless the basic decision-making units of an economic system ... Microeconomics, however, goes beyond the analysis of the behavior of individual agents in that it is also concerned with the way the decisions of economic agents interact in the determination of the allocation of resources between uses in an economy."

Macroeconomics moves up to take into consideration the entire economy and study the factors that helped shape the economy's current structure and also becomes useful in formulating economic policies. It discusses the major issues that affect a country's Gross National Product. These two branches may appear to deal with separate issues but they are closely connected to one another and usually they cannot be understood independent of each other.

This can be best explained with the help of examples. When a person makes a decision to buy a certain product, he helps increase demand for the product. This results in increase in supply and may push prices down. However it is not one person alone that determines if the supplier would increase production. The consumption factor has been keenly studied to determine what percentage of people is demanding a certain product. The supplier will increase production after carefully studying market forces. For this, he/she will need to learn about the macroeconomic conditions of the market. Similarly when a firm realizes it is not doing well, it needs to understand both the micro and macroeconomic issues. This means the firm will first need to see if demand for its products is stable or if it is decreasing. In either case, the firm will also need to focus on the income levels in the country and current inflation rate. It can also not ignore the unemployment issue etc. In this way, micro and macroeconomics are inter-connected and for a business player, it is important to have clear understanding of both types of issues.

Microeconomic decision:

In March this year, my family realized they had saved up to $20,000 which could be used to purchase either home theater equipment or for vacation to nearby countryside. We though about it for a while and then decided in the favor of the latter since it had been a while since the entire family has gone on a vacation. In this way, we allocated our scarce resources to the best possible alternative available. Here the concept of opportunity cost comes into operation. While making our decision, we weighed the pros and cons of both decisions and realized that the latter offered more in terms of personal satisfaction, relaxation and quality family time. In this way, we let go of the other opportunity we had but after we had carefully calculated the cost. It must be borne in mind that opportunity cost need not always be calculated in monetary terms, it can be anything that a person considers important.