Microeconomics Vs. Macroeconomics: Understanding 12 General Differences

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Description (Main Difference)

Microeconomics can be described as the study of individuals, firms, particular markets or households’ behavior in regard to decision making and allocation of resources. It focuses on economic issues at an individual level, company or group level like why an increase in the price of a product can lead to a lower consumption of that particular product.

Other areas that microeconomics focuses on include:

  • Labor economics
  • Externalities
  • Supply and demand for individual market
  • Profit maximization of firm
  • Consumer behavior (decision making, utility maximization)

Macroeconomics can be described as the study of the structure, performance, behavior and decision-making process of an economy as a whole. It primarily focuses on the aggregate economic changes that include factors like GDP (Gross domestic product), National income, and changes in unemployment, inflation and national output.

Other areas that macroeconomics focuses on include:

  • Trade and globalization
  • Economic trends (booms and recessions)
  • Taxes and tax incidences
  • Monetary and fiscal policy and its effects
  • Economic growth

Other Differences

Coverage

Macroeconomics studies the whole economy and that covers its entire (all) market segments whereas microeconomics studies a particular market segment of the economy.

Basis

The basis of microeconomics is the price mechanism which operates with the help of demand and supply forces, like how the price of a particular commodity will affect its quantity demanded and quantity supplied and vice versa. The forces act as a key determinant of the equilibrium price in the market.  On the contrary, the bases of macroeconomics are national income, fiscal policies, poverty, general price levels which are determined by aggregate demand and aggregate supply.

Further Description

Microeconomics can be described as a static dynamic analysis whereas macroeconomics can be described as a dynamic analysis. Macroeconomics takes into account time element, the rates of change and past and expected values of the variable whereas microeconomics does not take into account the time element.

Objective

The objectives of microeconomics are to maximize utility or maximization of profit or minimization of cost whereas the objectives of macroeconomics are full employment, price stability, economic growth, favorable balance of payment etc.

Complexity

Microeconomics is a complex because it entails generalization and deals with a wide range of situations. However, macroeconomics on the other hand, only seeks a practical understanding of an economy and therefore the complexity nature of macroeconomics is relatively less when compared to microeconomics.

Price

Microeconomics determines the price of a particular commodity along with the prices of complementary and the substitute goods whereas the macroeconomics is helpful in maintaining the general price level.

Approach

During economic analysis, macroeconomics takes a top-down approach into consideration whereas microeconomics takes a bottom-up approach.

Key Determinant

Income is the major determinant of macroeconomics problems; it is concerned with the determination of equilibrium level of income and employment of the economy whereas price is the main determinant of microeconomics problems; it discusses how equilibrium of a consumer, producer or an individual firm is attained.

Importance

Microeconomics is very helpful in determining the prices of a product along with the prices of factors of production (land, labor, capital, entrepreneurship etc) within the economy. On the other hand, macroeconomics maintains stability in the general price level and resolves the major problems of the economy like inflation, deflation, recession, unemployment and poverty as a whole.

Application

Microeconomics is applied to operational or internal issues whereas macroeconomics is applied to external and environmental issues.  Microeconomics is widely applied in labor economics, development economics, urban economics, environmental economics, regulation economics, industrial organization etc whereas macroeconomics is widely applied in international economics, public finance, study of particular economic regions or continent   like South America, Africa or Europe.

Limitations

Microeconomics is based on unrealistic assumptions such as it assumes that there is full employment in the society which is not a realistic situation. In contrast, macroeconomics has a problem of what is referred to as Fallacy of composition whereby what is possibly true for the aggregate variables may not be true or a reflection of for individuals or individual firms.

The Difference Between Macroeconomics And Microeconomics – Comparison Chart

ELEMENTS OF COMPARISON MACROECONOMICS MICROECONOMICS
Description Macroeconomics can be described as the study of the structure, performance, behavior and decision-making process of an economy as a whole. Microeconomics can be described as the study of individuals, firms, particular markets or households’ behavior in regard to decision making and allocation of resources.
Focus

 

It focuses on the aggregate economic changes that include factors like GDP (Gross domestic product), National income, and changes in unemployment, inflation and national output. It focuses on economic issues at an individual level, company or group level like why an increase in the price of a product can lead to a lower consumption of that particular product.
Coverage Macroeconomics studies the whole economy and that covers its entire (all) market segments. Microeconomics studies a particular market segment of the economy.
Basis The bases of macroeconomics are national income, fiscal policies, poverty, general price levels which are determined by aggregate demand and aggregate supply. The basis of microeconomics is the price mechanism which operates with the help of demand and supply forces.
Further Description Macroeconomics can be described as a dynamic analysis. Microeconomics can be described as a static dynamic analysis.
Objective The objectives of macroeconomics are full employment, price stability, economic growth, favorable balance of payment etc. The objectives of microeconomics are to maximize utility or maximization of profit or minimization of cost.
Complexity Macroeconomics on the other hand, only seeks a practical understanding of an economy and therefore the complexity nature of macroeconomics is relatively less when compared to microeconomics. Microeconomics is a complex because it entails generalization and deals with a wide range of situations.
Price The macroeconomics is helpful in maintaining the general price level. Microeconomics determines the price of a particular commodity along with the prices of complementary and the substitute goods.
Approach Macroeconomics takes a top-down approach into consideration. Microeconomics takes a bottom-up approach.
Major Determinant Income is the major determinant of macroeconomic problems; it is concerned with the determination of equilibrium level of income and employment of the economy. Price is the main determinant of microeconomics problems; it discusses how equilibrium of a consumer, producer or an individual firm is attained.
Importance Macroeconomics maintains stability in the general price level and resolves the major problems of the economy like inflation, deflation, recession, unemployment and poverty as a whole. Microeconomics is very helpful in determining the prices of a product along with the prices of factors of production (land, labor, capital, entrepreneurship etc) within the economy.
Business Application Macroeconomics is applied to external and environmental issues. Microeconomics is applied to operational or internal issues.
Limitations Macroeconomics has a problem of what is referred to as Fallacy of composition whereby what is possibly true for the aggregate variables may not be true or a reflection of for individuals or individual firms. Microeconomics is based on unrealistic assumptions such as it assumes that there is full employment in the society which is not a realistic situation.

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