Economy, asked by dashingda6892, 11 months ago

Economics is a decision making at micro and macro level

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Answered by yashvi1833
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What's the Difference?

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BY INVESTOPEDIA STAFF Updated Apr 19, 2019

Microeconomics vs. Macroeconomics: An Overview

Economics is divided into two different categories: microeconomics and macroeconomics. Microeconomics is the study of individuals and business decisions, while macroeconomics looks at the decisions of countries and governments.

While these two branches of economics appear to be different, they are actually interdependent and complement one another since there are many overlapping issues between the two fields.

Microeconomics

Microeconomics is the study of decisions made by people and businesses regarding the allocation of resources and prices of goods and services. It also takes into account taxes and regulations created by governments.

Microeconomics focuses on supply and demand and other forces that determine the price levels in the economy. It takes what is referred to as a bottom-up approach to analyzing the economy. In other words, microeconomics tries to understand human choices and resource allocation.

Having said that, microeconomics does not try to answer or explain what forces should take place in a market. Rather, it tries to explain what happens when there are changes in certain conditions.

For example, microeconomics examines how a company could maximize its production and capacity so that it could lower prices and better compete in its industry. A lot of microeconomic information can be gleaned from the financial statements.

Microeconomics involves several key principles including (but not limited to):

Demand, Supply, and Equilibrium: Prices are determined by the theory of supply and demand. Under this theory, suppliers offer the same price demanded by consumers in a perfectly competitive market. This creates economic equilibrium.

Production Theory: This is the study of production.

Costs of Production: According to this theory, the price of goods or services is determined by the cost of the resources used during production.

Labor Economics: This principle looks at workers and employers, and tries to understand the pattern of wages, employment, and income.

The rules in microeconomics flow from a set of compatible laws and theorems, rather than beginning with empirical study.

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