Learning Objectives
The terms Macroeconomics and microeconomics are coined by Ragnar Frisch. Microeconomics is a branch of economics that deals with the economic behavior one a person, household, or organization. That means the focus of microeconomics is on the study of a particular unit. On the contrary, macroeconomics is a branch of economics which deals with. See full list on opentextbc.ca. Microeconomics can be defined as economics that examines how persons allocate the minimum resource among the households and firms (Bade, 2001). The decisions made in the market regarding the purchase of specific goods and services affects directly or indirectly supply and demand chain. Micro and Macro Analysis: In recent years, the subject matter of economics is divided into two broad areas. One of them is called Microeconomics and the other is called Macroeconomics.These two terms microeconomics and macroeconomics were first coined and used by Ranger Frisco in 1933. In recent years, division of economic theory into two separate parts has gained much importance.
By the end of this section, you will be able to:
- Describe microeconomics
- Describe macroeconomics
- Contrast monetary policy and fiscal policy
Economics is concerned with the well-being of all people, including those with jobs and those without jobs, as well as those with high incomes and those with low incomes. Economics acknowledges that production of useful goods and services can create problems of environmental pollution. It explores the question of how investing in education helps to develop workers’ skills. It probes questions like how to tell when big businesses or big labor unions are operating in a way that benefits society as a whole and when they are operating in a way that benefits their owners or members at the expense of others. It looks at how government spending, taxes, and regulations affect decisions about production and consumption.
It should be clear by now that economics covers a lot of ground. That ground can be divided into two parts: Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses; Macroeconomics looks at the economy as a whole. It focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports. Microeconomics and macroeconomics are not separate subjects, but rather complementary perspectives on the overall subject of the economy.
To understand why both microeconomic and macroeconomic perspectives are useful, consider the problem of studying a biological ecosystem like a lake. One person who sets out to study the lake might focus on specific topics: certain kinds of algae or plant life; the characteristics of particular fish or snails; or the trees surrounding the lake. Another person might take an overall view and instead consider the entire ecosystem of the lake from top to bottom; what eats what, how the system stays in a rough balance, and what environmental stresses affect this balance. Both approaches are useful, and both examine the same lake, but the viewpoints are different. In a similar way, both microeconomics and macroeconomics study the same economy, but each has a different viewpoint.
Whether you are looking at lakes or economics, the micro and the macro insights should blend with each other. In studying a lake, the micro insights about particular plants and animals help to understand the overall food chain, while the macro insights about the overall food chain help to explain the environment in which individual plants and animals live.
In economics, the micro decisions of individual businesses are influenced by whether the macroeconomy is healthy; for example, firms will be more likely to hire workers if the overall economy is growing. In turn, the performance of the macroeconomy ultimately depends on the microeconomic decisions made by individual households and businesses.
What determines how households and individuals spend their budgets? What combination of goods and services will best fit their needs and wants, given the budget they have to spend? How do people decide whether to work, and if so, whether to work full time or part time? How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means?
What determines the products, and how many of each, a firm will produce and sell? What determines what prices a firm will charge? What determines how a firm will produce its products? What determines how many workers it will hire? How will a firm finance its business? When will a firm decide to expand, downsize, or even close? In the microeconomic part of this book, we will learn about the theory of consumer behavior and the theory of the firm.
What determines the level of economic activity in a society? In other words, what determines how many goods and services a nation actually produces? What determines how many jobs are available in an economy? What determines a nation’s standard of living? What causes the economy to speed up or slow down? What causes firms to hire more workers or to lay workers off? Finally, what causes the economy to grow over the long term?
An economy’s macroeconomic health can be defined by a number of goals: growth in the standard of living, low unemployment, and low inflation, to name the most important. How can macroeconomic policy be used to pursue these goals? Monetary policy, which involves policies that affect bank lending, interest rates, and financial capital markets, is conducted by a nation’s central bank. For the United States, this is the Federal Reserve. Fiscal policy, which involves government spending and taxes, is determined by a nation’s legislative body. For the United States, this is the Congress and the executive branch, which originates the federal budget. These are the main tools the government has to work with. Americans tend to expect that government can fix whatever economic problems we encounter, but to what extent is that expectation realistic? These are just some of the issues that will be explored in the macroeconomic chapters of this book.
Microeconomics and macroeconomics are two different perspectives on the economy. The microeconomic perspective focuses on parts of the economy: individuals, firms, and industries. The macroeconomic perspective looks at the economy as a whole, focusing on goals like growth in the standard of living, unemployment, and inflation. Macroeconomics has two types of policies for pursuing these goals: monetary policy and fiscal policy.
Self-Check Questions
What would be another example of a “system” in the real world that could serve as a metaphor for micro and macroeconomics?
Review Questions
- What is the difference between microeconomics and macroeconomics?
- What are examples of individual economic agents?
- What are the three main goals of macroeconomics?
Critical Thinking Questions
- A balanced federal budget and a balance of trade are considered secondary goals of macroeconomics, while growth in the standard of living (for example) is considered a primary goal. Why do you think that is so?
- Macroeconomics is an aggregate of what happens at the microeconomic level. Would it be possible for what happens at the macro level to differ from how economic agents would react to some stimulus at the micro level? Hint: Think about the behavior of crowds.
Glossary
- fiscal policy
- economic policies that involve government spending and taxes
- macroeconomics
- the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance.
- microeconomics
- the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms
- monetary policy
- policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing
Solutions
Answers to Self-Check Questions
There are many physical systems that would work, for example, the study of planets (micro) in the solar system (macro), or solar systems (micro) in the galaxy (macro).
Microeconomics Vs Macroeconomics
Posted byMicroeconomics
• The word ‘micro’ is derived from the Greek word ‘mikros’ which means ‘small.’
• It is the study of economics at an individual, group or company level.
• The central problem is price determination and allocation of resources.
• Price is the primary determinant of macroeconomic problems.
• It covers various issues like supply, demand, product pricing, consumption, production, economic welfare, etc.
Microeconomics And Macroeconomics Examplescapeselfie Textbook
• It takes a bottom-up approach to analyzing the economy
Microeconomics And Macroeconomics Examplescapeselfie Frq
• Partial equilibrium method is used in microeconomics
• It deals with individual economic variables
• It consists of individual entities
• It solves the central problem of how, what and for whom to produce in the economy
Applications
Used to determine methods of improvement for individual business entities.
Careers
Economist, Researcher, Professor, financial advisor, and more.
Pros of Microeconomics
It depends on a free enterprise economy; i.e., the company is independent to take decisions.
Cons of Microeconomics
It only analyzes a small part of an economy while a bigger part is left untouched.
Macroeconomics
• The word ‘macro’ is derived from the Greek word ‘makros’ which means ‘large.’
• It is the study of a national economy as a whole
Economics
• Its central problem is the determination of the level of income and employment.
• Income is the primary determinant of Macroeconomic problems.
• It covers various issues like national income, distribution, employment, general price level, money, etc.
• It takes a top-down approach to analyze the economy
• General equilibrium method is used in macroeconomics
• It deals with aggregate economic variables
• The foundation of macroeconomics is microeconomics
The Birth Of Macroeconomics
• It solves the central problem of the full employment of resources in the economy.
Applications
Used to determine an economy’s overall health, the standard of living, and needs for improvement.
Careers
Economist, Professor, Researcher, Financial Advisor and more.
Pros of Macroeconomics
It is helpful in determining the BOP (balance of payments) along with the causes of deficit and surplus of it.
Microeconomics Theory
Cons of Macroeconomics
Its analysis states that the aggregates are homogeneous, but occasionally they are heterogeneous.
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