Economics is the study of allocation of scarce resources among limitless wants of consumers. It is divided into macroeconomics and microeconomics. This paper discusses the differences between macroeconomics and microeconomics.
Macroeconomics deals with the study of national, regional and international economies. It focuses on indicators such as gross domestic product, unemployment rates and price indices. Therefore, macroeconomists collect aggregate data, for example, national income of a country. Microeconomics analyzes market mechanisms such as demand and supply that influence prices of goods and services. Macroeconomists collect data for specific entities. They may determine demand of goods and use the information to advise manufacturing firms.
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Macroeconomics involves the study of policy tools such as taxation, monetary policy and fiscal policy. These policies are used by governments to make choices hence achieve economic development. There is the rationale of government intervention to control fluctuations in the economy. Microeconomics deals with policies that aim to increase efficiency and productivity of economic institutions (Gujrati, 2015). Firms make decisions based on microeconomic policies. They may decide to reduce production costs thus improve efficiency and increase the profit margin.
Microeconomics is based on the principle that markets have a state of equilibrium. Market fluctuations last for a shorter period and revert to a state of equilibrium. A question that a macroeconomist might ask is how demand and supply of goods have influenced equilibrium price. In macroeconomics, the economy can be in a state of disequilibrium for a longer period (Gujrati, 2015). It occurs during the business cycle where the economy experiences expansion, boom, recession and depression phases. A macroeconomist might seek to understand the characteristics of an economy experiencing depression.
In conclusion, microeconomics uses a bottom-up approach to analyze the economy by focusing on individual entities. Macroeconomics takes a top-down approach by studying the whole economy. However, the two branches of economics are interdependent and related.
Reference
Gujrati, R. (2015). Microeconomic And Macroeconomic: Issues & Effects On Economic Growth. International Journal of Recent Scientific Research , 5310-5317.
