Economics is a branch of applied mathematics that is concerned with the study of the distribution and allocation of resources. Economics is divided into two major branches; macroeconomics and microeconomics. When the study of the distribution of resources is done at an individual, group, or company level, then it is called microeconomics. Macroeconomics is the study of economics on a national or country level as a whole. While at a glance, these two categories of economics may seem confusing at first, it is very easy to differentiate them. How do we separate the two disciplines? In this article, you will see the difference between micro and macroeconomics.
Microeconomics studies and seeks to solve economic problems on smaller levels. It focuses on economic issues from the bottom-up perspective. I.e., Microeconomics does not explain what happens in the market; it describes what happens to individuals or businesses when specific changes take place in the conditions around the individual or business. An excellent example of a microeconomics study would be the consideration of the effects of raising the wages of the employees.
How the decision would affect the company’s financial status, the employees’ financial status and the living conditions of the surrounding community in general. Another microeconomics effect that the company considers before raising the wages of the employees would be, what would be the ultimate effects of the pricing of the company’s products.
The pricing of the products would then again affect the demand for the products and eventually the profit levels of the company. Micro-economists within the company would analyze and calculate the most optimum solution for the company so that they still maintain or increase their productivity and profit levels, even if they raise the wages of their employees. They may also consider firing their most unproductive employees to balance the increment of the wages of the most productive employees. This is a topic of microeconomics called Labor economics. The following are the other primary points of study within microeconomics.
The study of product demand, supply and equilibrium is essentially a basic microeconomics concept. It explains how the prices of commodities are affected by their availability which is affected by how aggressive the consumers are to the product in the market.
Another important microeconomics factor is an opportunity cost. Opportunity cost is the consideration of the value of making one decision over the other. It is the consideration of all the benefits that you forfeit when you choose one thing, and you leave another. The principle of opportunity cost can be in the form of funds tied up in a business, where the opportunity cost would be the amount of profit that would have been gained if the funds were in other alternative ventures. It could be in terms of time, where the time spent in one occupation could be time devoted to earning in other business ventures etc.
Macroeconomics generally looks at economic issues from up going down. It is the branch of economics that is concerned with the effects of specific policies on the regional or national economy. It considers economic principles, policies, effects, and activities within entire industries and countries rather than within individuals and particular companies.
This is to say like a macroeconomist will study the effects of low-interest rates on individuals or small company borrowers, a macroeconomist will study the impact of low interest rates on the unemployment rate, national debt levels or the housing market. The other important factor that macroeconomists study is the determination of taxation and their effect on local and international trade. They consider the impact of these trade markets on the GDP of the country and develop policies that are aligned with the economic goals of the country in general.
Macroeconomics focuses on economic aggregates and economic correlations that form a basis for the fiscal policies that governments construct to help them drive the country to the economic targets that they intend to get to. Macroeconomics aggregates are what determine the monetary currency value for the country and the value for industrial development that a country stands at and the amount the country will be willing to invest in specific industries.
Both microeconomics and macroeconomics use similar principles and formulas to solve problems. While microeconomics affects individual investment opportunities, macroeconomics is what determines the ease of the venture by the use of policies and the ultimate value of that investment with time due to the interest rates.
That is the codependency that micro and macroeconomics answers. The individual and company issues that make up small scale economies are what determine the policies that are developed according to the amount of revenue that circulates within them. These policies are then responsible for the regulation and prosperity of these individuals and small scale organizations.