Difference between Microeconomics and Macroeconomics

This article will help you to learn about the difference between microeconomics and macroeconomics.

Difference between Microeconomics and Macroeconomics

Difference # Microeconomics:

The word ‘micro’ is derived from the Greek word ‘mikros’. Mikros means ‘small’.

Thus, microeconomics means economics in the small. We know that resources are scarce in relation to demand. So choices have to be made.

A country has to make at least three choices:

(a) What goods and services are to be produced?

(b) How these goods are to be produced; and

(c) For whom these goods are to be produced.

These choices are usually called microeconomic choices since these are concerned with the individuals (i.e., small units) that make it up. Thus, microeconomics

is a microscopic view of the economy households, firms, input-owners, etc. Microeconomics takes into account the behaviour of these economic agents. It deals with the operation of a consumer, a firm, involving the determination of prices of a commodity, revenues, costs, employment levels in a firm or industry, and so on.

Micro­economics seeks to explain and predict such things as the prices and outputs of firms and industries, the choices of consumers in buying goods and services, production efficiency and costs, the adjustment of markets to new conditions, etc. The emphasis is on the trees and not the forest.

According to K. E. Boulding; “Micro­economics is the study of particular firms, particular households, individual prices, wages, income of individual industries, particular commodities.”

In microeconomics, we study two things:

(i) How prices of commodities and inputs are determined; and

(ii) How resources are allocated in different sectors of the economy in different branches of production in a free enterprise economy. Microeconomics is the branch of economics concerned with the study of behaviour of consumers and firms and the determination of market prices and quantities bought and sold of goods and inputs.

In addition, microeconomics formulates policies so as to promote social welfare.

The contents of microeconomics are presented in the following form:

Difference # Macroeconomics:

On the other hand, the word ‘macro’ is derived from the Greek word ‘makros’, mean­ing large. Thus, macroeconomics means eco­nomics in the large. It is concerned with the behaviour of the whole economic system in its totality. It is concerned with the large aggregates. Macroeconomics is the study of the nation’s economy as a whole.

Macroeconomic analysis may, thus, be considered as a big-picture exercise with the main concerns being the overall level of economic activities, total employment, national products, aggre­gate savings and investment, the general price level, international trade balances, govern­ment taxes and spending, etc. That is why macroeconomics is called ‘aggregative eco­nomics’, while microeconomics is referred to as ‘disaggregative economics’.

Macroeconomics studies the determina­tion of national income or output and employ­ment, the general price level, the balance of payments and policies to tackle macroeconomic problems like inflation, unemployment, recession, etc.

Thus, in macroeconomics, we are concerned with certain broad aggregates or the ‘overall dimensions of economic life’. In the words of K. E. Boulding; “Macro­economics is the study of nature, relationships and behaviour of aggregates of economic quantities. Macroeconomics deals not with individual quantities as such, but aggregates of these quantities not with individual incomes, but the national income, hot with individual prices, but with price levels, not with individual output, but with the national output.”

Economics is a study of both the trees and the forest i.e., both micro and macro­economics. One cannot afford to neglect any one. Then only can one get a composite picture, a totality, of what is Economics. P. A. Samuelson remarks: “There is really no opposition between micro and macro­economics. Both are absolutely vital. And you are half-educated if you understand the one while being ignorant of the other.”