डिफरेंस बिटवीन माइक्रोइकोनॉमिक्स एंड मैक्रोइकोनॉमिक्स
Answers
Answer:
Microeconomics studies individuals and business decisions, while macroeconomics analyzes the decisions made by countries and governments.
Difference between microeconomics and macroeconomics
Readers Question: Could you differentiate between micro economics and macro economics?
- Microeconomics is the study of particular markets, and segments of the economy. It looks at issues such as consumer behaviour, individual labour markets, and the theory of firms.
- Macro economics is the study of the whole economy. It looks at ‘aggregate’ variables, such as aggregate demand, national output and inflation.
Micro economics involves
- Supply and demand in individual markets.
- Individual consumer behaviour. e.g. Consumer choice theory
- Individual labour markets – e.g. demand for labour, wage determination.
- Externalities arising from production and consumption. e.g. Externalities
Macro economics involves
- Monetary / fiscal policy. e.g. what effect does interest rates have on the whole economy?
- Reasons for inflation and unemployment.
- Economic growth
- International trade and globalisation
- Reasons for differences in living standards and economic growth between countries.
- Government borrowing
Differences between microeconomics and macroeconomics
The main difference is that micro looks at small segments and macro looks at the whole economy. But, there are other differences.
Equilibrium – Disequilibrium
Classical economic analysis assumes that markets return to equilibrium (S=D). If demand increases faster than supply, this causes price to rise, and firms respond by increasing supply. For a long time, it was assumed that the macro economy behaved in the same way as micro economic analysis. Before, the 1930s, there wasn’t really a separate branch of economics called macroeconomics.
Great Depression and birth of Macroeconomics
In the 1930s, economies were clearly not in equilibrium. There was high unemployment, output was below capacity, and there was a state of disequilibrium. Classical economics didn’t really have an explanation for this dis-equilibrium, which from a micro perspective, shouldn’t occur.
In 1936, J.M.Keynes produced his The General Theory of Employment, Interest and Money; this examined why the depression was lasting so long. It examined why we can be in a state of disequilibrium in the macro economy. Keynes observed that we could have a negative output gap (disequilibrium in the macro-economy) for a prolonged time. In other words, microeconomic principles of markets clearing, didn’t necessarily apply to macro economics. Keynes wasn’t the only economist to investigate this new branch of economics. For example, Irving Fisher examined the role of debt deflation in explaining the great depression. But, Keynes’ theory was the most wide-ranging explanation and played a large role in creating the new branch of macro-economics.
Since 1936, macroeconomics developed as a separate strand within economics. There have been competing explanations for issues such as inflation, recessions and economic growth.
Similarities between microeconomics and macroeconomics
Although it is convenient to split up economics into two branches – microeconomics and macroeconomics, it is to some extent an artificial divide.
Micro principles are used in macroeconomics. If you study the impact of devaluation, you are likely to use same economic principles, such as the elasticity of demand to changes in price.
Micro effects macroeconomics and vice versa. If we see a rise in oil prices, this will have a significant impact on cost-push inflation. If technology reduces costs, this enables faster economic growth.
Blurring of distinction. If house prices rise, this is a micro economic effect for the housing market. But, the housing market is so influential that it could also be considered a macro-economic variable, and will influence monetary policy.
There have been efforts to use computer models of household behaviour to predict the impact on the macro economy.
