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What's the Difference Between Microeconomics and Macroeconomics?

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The main difference between Microeconomics and Macroeconomics is the scope of the study. Microeconomics focuses on the economical behavior, changes, and decisions of certain individuals or firms. Macroeconomics, on the other hand, studies different economic phenomena, patterns, and structures on a regional, national, or global scale.

What is Microeconomics?

Microeconomics is a branch of economics that studies individuals' or firms' decisions and the effects of changes in particular conditions. This field of economics explains the repercussions of taxes, regulations, and government legislation towards the allotment of scarce resources and the prices of goods and services.

The concept of Microeconomics was first introduced by a Norwegian economist, Ragnar Frisch, in 1933. Frisch is one of the recipients of the first Nobel Memorial Prize in Economic Sciences in 1969. However, the term “microeconomics” wasn’t used by Frisch. Instead, he used the term “micro-dynamic” to explain the concept of Microeconomics then. It was not until 1941 when Pieter de Wolff published an article and delved deep into the concept and coined the word “microeconomics.”

What is Macroeconomics?

Macroeconomics is a branch of economics that studies the decisions of governments and countries towards a whole industry rather than a specific individual or business. This field of economics encompasses factors and issues that are of national concern. It is an examination of the government’s policies and strategies that affects the economical aspect of the masses on a national or global scale.

The modern and well-known form of Macroeconomics started with the publication of the book called “The General Theory of Employment, Interest, and Money” in 1936 by John Maynard Keynes. In this book, Keynes attempted to explain the fallout from the Great Depression when goods were unsold and workers were unemployed. Prior to that, there was no significant differentiation between micro and macroeconomics. However, the link between goods markets, price levels, interest rates, and money was further discovered and explained by renowned economists such as Wicksell and Fisher and it gave way to the modern Macroeconomics that is widely accepted today.

Differences Between Microeconomics and Macroeconomics

Microeconomics and Macroeconomics are under the same umbrella. Both of the disciplines are branches of Economics. Both Micro and Macroeconomics examine the influence and interactions of production, distribution, consumption and other related factors that affect society in terms of economy. However, pointing out the differences between the two can help the public understand how economics works better.

Approach

Microeconomics utilizes the “bottom-up” approach. The bottom-up approach or analysis is a type of information processing based on incoming data from the environment to form a perception. It gathers bits of information that are tied up together to form larger systems as conclusions. In economics, the bottom-up approach analyzes business performance, management and risks using mathematical models.

Macroeconomics uses the “top-down” approach. A top-down approach or analysis is also a type of information processing. In simple terms, it is breaking down a system to comprehend its compositions. The Top-down approach is like starting at the bigger picture first and then itemizing the information into smaller segments. In economics, Top-down analysis relies on historical data to interpret an economic phenomenon or pattern.

Scale and Application

Microeconomics studies a particular sector or segment of the economy. It examines individuals, households, or firms. It is applied to operational or internal issues. It is also concerned with the balance of supply and demand in individual markets, consumer behavior, demand in the workforce, or determining factors of wages.

Macroeconomics studies the aggregate of economic units on a national or global scale. It is applied to national economic topics or concerns. It can also be related to the analysis of fiscal policy, contributing factors of unemployment, national debt, globalization, and global trading patterns.

Limitations and Assumptions

Microeconomics is quite restrictive because its assumptions are too ideal and unrealistic. As an example, the theory of demand and supply that is used to examine consumer behavior in microeconomics usually assumes that markets are perfectly competitive. It suggests that the buyers and sellers are countless and have no quality to influence the prices of goods and services. But in reality, in most transactions, buyers and sellers have the power to control prices.

The Fallacy of Composition can be seen throughout the examination of economic phenomena in Macroeconomics. By definition, the Fallacy of Composition, also known as “Part of The Whole Fallacy”, is the assumption that a single member of the class is true to the entire class. In economics, what is true for a single part of the economy is also true for its entirety. For example, the Tragedy of the Commons. If an individual can profit by having a larger share of a common, shared resource such as fish in the sea, if every other individual does this, the resource could ultimately be depleted or destroyed.

Basic Concepts

Microeconomics focuses on supply and demand, opportunity cost, and other forces that are responsible for the different levels of prices in the economy. It is an effort to understand human choices, decisions, and the allocation of resources.

Macroeconomics focuses on the relationship of the behavior of a region or nation to the impact of the policies on its whole economy. It is an effort to study and understand an economic situation on a big societal level.

Comparison Chart: Macroeconomics Vs Macroeconomics

SpecificationsMicroeconomicsMacroeconomics
ApproachBottom-up Approach
Mathematical Models
Top-Down Approach
Historical Data
Scale and ApplicationParticular Segment of the Economy (individual, firms, businesses)Regional, National, Continental, or Global (fiscal policy, globalization, national debt)
Limitations and AssumptionsUnrealistic, Ideal
Supply and Demand
Fallacy of Composition
Tragedy of the Commons
Basic ConceptsUnderstanding human choices and allocation of resourcesImpact of government policies on the national economy
History1933, Ragnar Frisch “micro-dynamic”
1941, Pieter de Wolff
“microeconomics “
1936, John Maynard Keynes
“The General Theory of Employment, Interest, and Money”

Frequently Asked Questions

What is the Key Role of Microeconomics?

The key role of microeconomics is to study how a company can maximize its resources so it could be cost-efficient in terms of lowering prices while being competitive in its respective field of industry. To gather information, macroeconomists should look for financial statements in order to have a better view and understanding of the current financial situation of an individual or company.

What are the Concerns of Macroeconomics?

Macroeconomics is concerned with the association between various countries regarding the success and failure of government policies, regulations, and strategies. It can also be found in the examination of the degree of employment, cost prices, wage rates, and interest rates.

What Career Paths can an Economist Take?

Microeconomists and Macroeconomists can be professors, researchers, or financial advisors. There is no major distinction between the two in terms of career opportunities since they are both branches of Economics. 

Conclusion

Microeconomics and Macroeconomics are disciplines that aim to inform, explain, and predict economic phenomena and issues that an individual or the public can experience. Even though the purpose is quite the same, these tools are specialized to efficiently do what they are made to do. 

References

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About the Author: Nicolas Seignette

Nicolas Seignette, who holds a scientific baccalaureate, began his studies in mathematics and computer science applied to human and social sciences (MIASHS). He then continued his university studies with a DEUST WMI (Webmaster and Internet professions) at the University of Limoges before finishing his course with a professional license specialized in the IT professions. On 10Differences, he is in charge of the research and the writing of the articles concerning technology, sciences and mathematics.
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