Difference Between Micro and Macro Economics

As a prominent branch of Social Science, Economics mainly studies how society uses limited resources as well as the production, consumption and distribution of goods Economics is divided into two branches, namely, Macroeconomics and Microeconomics. Microeconomics focuses on how businesses and individuals make decisions regarding prices, allocation of resources, budgeting, etc. Macroeconomics looks at the wider picture by factoring in the economy and government decisions of a country as a whole. Through this blog, we will explore the key points of difference between Micro and Macro Economics.

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What is Microeconomics?

Microeconomics is a branch of economics that studies the behaviour of individuals and businesses. Further, it focuses on different aspects of how decisions are made based on the allocation of limited resources. It studies the pattern of demand and supply as well as the determination of output and price in individual markets. Before delving deeper into the difference between Micro and Macro Economics, let’s first explore the key components of Microeconomics.

The various key principles it comprises are:

• Production Theory: This theory postulates the study of how goods and services are manufactured or produced.
• Demand, Supply, and Equilibrium: Prices are decided by the principles of supply and demand. Under this method, suppliers give the same rate or price as demanded by buyers or customers in a perfectly competitive market. This produces an economic balance between supply and demand.
• Costs of Production: This principle determines the cost of goods and services that is restricted by the cost of the supplies utilised during the production phase.
• Labor Economics: This concept of economics encompasses the basic principles of workers and employers, and examines the pattern and model of employment, wages and income.

What is Macroeconomics?

The word ‘Macro’  is derived from the Greek word ‘Makro’ (meaning “large”) and combining it with economics, this branch deals with the production, performance, behaviour, structure, and decision-making of an economy as a combination of all entities, rather than individual firms or markets. This comprises different types of the economy including national, territorial, and world economies. At the school level, Macroeconomics and Microeconomics are studied under the Commerce and Arts stream subjects. Further, the Class 12 Macroeconomics syllabus essentially explores the process of generating Gross Domestic Product (GDP). Further, you will also get to learn about the causes and effects of changes in national income, unemployment, growth rate, and price levels. The key point of difference between Micro and Macro Economics is that Microeconomics stays limited to the individual level and Macroeconomics peruses the economy as a whole.

Some of the major factors you will get to study in Macroeconomics are:

• Gross Domestic Product (GDP): As one of the prime indicators, it is used to measure the strength of a nation’s economy. GDP is the fiscal value of all the finished goods and services rendered within a country’s boundaries.
• National Income: It is an economic indicator that determines the correct picture of the economy and purchasing ability of people in the nation. It represents the sum of profits, wages, interest rents and pension payments to citizens of the country.
• Unemployment: This factor depicts the measurement of unemployment of people in the country and the rate at which people look for work or job is the unemployment rate. This rate is equivalent to the number of unemployed people divided by the labour force.
• Economic Growth: Economic growth is the positive effect of GDP on the economy of a country that increases the market value of the goods and services produced by an economy over a certain period.
• Inflation: This results in the loss of value of money and depreciation the economic growth and it is usually caused when goods and services are in high demand, creating a drop in the availability of goods and services and hence customers have to pay more for the products and services 

Examples of Micro and Macroeconomics

There are numerous examples of Micro and Macroeconomics across factors, aspects and economic activities. Here is the difference between Micro and Macroeconomics for example:

Examples of Microeconomics

• Inflation
• GDP
• Unemployment rates
• Economic outputs
• Price Stability
• Goods
• Productivity
• Stability

Examples of Macroeconomics

• Supply
• Demand
• Prices
• Elasticity
• Competition
• Opportunity Cost
• Competitive Advantage
• Consumer Choice
• Welfare Economics

Understanding the Difference Between Micro and Macro Economics Comparison Chart

Now that you are familiarised with what Microeconomics and Macroeconomics mean, let’s explore the points of difference between Micro and Macro Economics.

Basis of Difference Between Micro & Macro Economics	Macroeconomics	Microeconomics
Definition	It aims to study the economy as a whole and covers different market segments.	Focusing on an individual level, Microeconomics studies a specific market segment in an economy.
Central Approach	Takes an expansive approach by studying the whole economy.	More of an individual-centric approach as it is concerned with businesses and households and analyses consumer behaviour, resource allocation and human choices.
Concerned with	Also called the income theory because it describes the changing levels of national income of an economy during a certain period.	Referred to as the price theory, it deals with factor pricing such as rent, interest, wage, profits, etc. for land, labour, capital and enterprise and explains how different prices are decided.
Factors	National income, GDP, distribution, employment, general price level, money, etc	Demand, supply, factor pricing, product pricing, economic welfare, production, consumption, etc.
Importance	Preserves stability in the broad price level and solves the major issues of the economy like deflation, inflation, rising prices (reflation), unemployment and poverty, etc.	Plays a significant role in regulating the prices of a product alongside the prices of various factors of production (labour, land, entrepreneur, capital, etc) within the economy.
Applications	It helps in strengthening policies and uniform resource distribution at the economic level such as unemployment, inflation level etc.	It helps in developing policies to facilitate appropriate resource distribution at the firm level.
Examples	National Income & Savings; Aggregate Demand; Inflation Rates, GDP; Rate of Employment, Poverty, etc.	Individual Income & Savings; Determining the price of a specific good or commodity; Consumer Equilibrium; Output generated and produced by a specific firm.

Relationship Between Micro and Macroeconomics

The similarities between Micro and Macroeconomics are based on the factor that they both study different economic problems.

Microeconomics studies the economic problem of scarcity and choice at an individual level and how an individual makes these economic decisions and Macroeconomics expands it further to the economy as a whole thus studying how a country can take large-scale decisions in making economic budgets, tackling inflation, competition across markets and much more. The relationship between Micro and Macroeconomics is that they are dependent on each other because microeconomic variables largely rely on macroeconomic variables and similarly macroeconomics depends on the microeconomic variables in an economy.

For example, every individual’s income (microeconomic variable) in an economy would largely the national income (macroeconomic variable) and on the other hand, the overall inflation rate (macroeconomic variable) would also affect the purchasing power of an individual (microeconomic variable) in an economy.

What is a Global Macro Strategy?

A global macro strategy is an investment and trading strategy that centres around large macroeconomic events at a national or global level. The term “Global Macro” refers to the study and analysis of a wide range of macroeconomic variables, such as interest rates, currency values, governmental activities, and international interactions.

How Do Core Concepts of Microeconomics Affect Stock Prices?

Stock prices are impacted by supply and demand and other microeconomic theories both directly and indirectly.

• The influence of supply and demand imbalance on stock prices may be used to determine the direct effect. Stocks increase when demand outpaces supply at a given moment because there are more buyers than selling; on the other hand, stocks fall when supply outpaces demand because there are more sellers than buyers.
• Based on the supply and demand for the underlying company’s goods and services, the indirect effect is determined. A firm may be on a positive profit trajectory if its items are flying off the shelves as a result of strong demand, which would probably result in a higher price for its shares. However, the company’s earnings can fall short of expectations and the stock price might plunge if there is too much inventory (or supply) of its items and demand is weak.

Popular Books for Micro and Macro Economics

• Macroeconomics by Greg Mankiw.
• Macroeconomics by Stephen Williamson.
• Advanced Macroeconomics by David Romer.
• Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework and its Applications by Jordi Gali.
• Recursive Macroeconomic Theory by Lars Ljungqvist and Thomas J Sargent.
• Principles of Microeconomics by N. Gregory Mankiw
• Microeconomic Theory by Andreu Mas-Colell
• Modern Microeconomics by H. L. AHUJA
• Microeconomics: Principles, Problems, and Policies by Campbell McConnell

Micro and Macro Economics PPT

Ch. 1 micro and macro economics from Manish Purani

Micro and Macro Economics PDF

Download the PDF for Micro and Macro Economics from HERE.

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