Difference between micro and macro economics

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Is microeconomics different from macroeconomics? These two economic branches may at first seem confusing, especially factoring that they overlap in so many areas, but once you understand the aspects covered in each through macroeconomics answers, you'll find them easy to differentiate.

The main difference between the two is easy; while microeconomics is the study of an individual, a group, company, or market, macroeconomic involves the study of the national or international economy as an aggregate of all the individual agents studied in microeconomics. Issues that affect individuals, companies, or markets are studied at the microeconomic level. These issues include supply and demand of a given product, production levels of a company or individual and regulations that affect a market. On the other hand, macroeconomics deals with the economy in its entirety. Here, fields such as imports and exports, unemployment rates and GDP are covered. Both of these fields will use the same principles and formula, but microeconomics deals with an economy at a small scale while macroeconomics deals with a far larger scale.

Interdependence between Micro and Macroeconomics

From the simple explanations above, these two fields of economics might sound very different. In reality, however, the two fields are nearly indistinguishable as the issues studied may overlap at more than one instance. For instance, inflation is widely studied under macroeconomics. There is a horde of variables contributing to inflation including increased money supply and low interest rates. While this might seem like an area that is purely under macroeconomics, inflation raises the price of goods and services, thereby affecting individuals and businesses. In a time of high inflation, businesses are forced to sell goods or services at a higher price and also pay their employees higher to meet the high cost of living.

There are many more fields studied under macroeconomics that ultimately affect individuals and businesses. Unemployment, for instance, through a macroeconomic aspect, affects individual buying habits, an element that falls under the field of microeconomics.

Common Issues Covered in Microeconomics

Microeconomics seeks to address issues that affect individuals on a day-to-day basis. Some economists describe it as the study of behavior from the grassroots level going up. Results on microeconomic studies are dictated by low-level decisions taken by individuals or businesses. An excellent example of this would be a company raising salaries for its employees. Raised salaries raise the cost of production and consequently the price of products. Another company might decide to raise wages to a group of productive employees and fire a group of less productive employees. In such a case, what would happen to production price and the price of products? This is one of the questions that micro economists seek to answer. Individuals also apply microeconomics to predict the effects of the decisions they make. Opportunity cost is one of the principles that individuals apply in studying their own choices and their consequences. Simply put, the opportunity cost is concerned with the value you lose when you choose one item over another. For instance, by selecting one career, you gain some benefits, but lose others. Given the small scale nature of microeconomics, individuals and businesses can apply its principles to better their bottom-line.

Common Issues Covered in Macroeconomics

Macroeconomics focuses on the bigger picture like the effects of a policy on national, regional, or international economy. For instance, while a micro economist might be interested in the impact of low-interest rates on individual borrowers, a macroeconomist will be involved in the effects of low-interest rates on national unemployment rates and the national housing costs. Another common issue in macroeconomists is the effect of taxes on the economy of a country or a region. To do this, a macroeconomist will study using factors such as GDP and national income and not individual elements. However, GDP and National Income are contributed by individuals, which touch on microeconomics.

Similarities between Micro and Macroeconomics

The split between micro and macroeconomics is mostly artificial. These two fields are the same in a number of instances such as:

Microeconomic principles are used in the macroeconomic study. For example, the elasticity of demand principles can be used in both micro and macroeconomics.
Micro affects macro and vice versa. An increase in oil prices might be caused by national policies but will affect individuals and businesses. A reduction in the price of accessing technology will change the individual, company, and national growth.
Some markets are huge to an extent they influence the national economy. For instance, the housing market is a microeconomic niche, but the market is so huge it can even affect the national economy.

There is a need for balanced economic education. With the two main branches of economics overlapping in so many areas, economists need to be well versed in both fields. Skills used to collect and analyze data in microeconomics can be used in research in macroeconomics. Again, microeconomic studies can be aggregated to predict the national economy.