Micro and Macro Economics

Micro Economics

The word “micro” means very small.

So microeconomics implies the study of economics at a very small level.

In a society comprising of many individuals collectively every single individual makes just a small part. So the economic decisions taken by a single individual become the subject matter of microeconomics.

What are the economic decisions an individual takes?

[a] In order to satisfy various wants an individual buys goods and services.

To buy goods and services the individual has to pay some price from his limited amount of income.

So the individual has to make a decision with regard to the quantity of the goods to be purchased at a given price.

He/she has to also decide the combination of different goods to buy given his/her income so that he/she can get maximum satisfaction as a buyer.

[b] An individual also sells goods and services as a seller.

Here he/she has to take the decision regarding the quantity of goods to be supplied at a given price so that he/she can earn some profit.

[c] All of us pay price to buy a good.

How does this price get determined in the market?

Microeconomics provides an answer to this question.

[d] In order to produce a good an individual producer has to make a decision as to how to combine the various factors of production so that maximum output can be produced at minimum cost.

All these are some important areas of study under microeconomics.


Macro Economics

The word macro means very large.

In comparison to an individual, the society or the country or economy as a whole is very large.

So the economic decisions taken at the level of the economy as a whole are the subject matter of macroeconomics.

Take the example of the economic decisions taken by the government.

We all know that the government represents the whole country, not just any individual.

So the decisions taken by the government are meant for solving the problems of the whole society.

For example, the government makes policies with respect to the collection of taxes, expenditure on public goods and welfare activities, etc. which affect the whole economy.

“How do such policies work” is the subject matter of macroeconomics.

In microeconomics, we study the behavior of an individual as a buyer and seller. As a buyer, the individual spends money on goods and services which is called his/her consumption expenditure.

If we add consumption expenditure of all individuals then we get the idea of aggregate consumption expenditure of the whole society.

Similarly, aggregating incomes of individuals becomes the total income of the country or national income.

So the study of these aggregates such as national income, total consumption expenditure of the country, etc. comes under macroeconomics.

Another example of macroeconomic issues is the study of inflation or price rise.

Inflation or price rise does not affect an individual only, but it affects the whole economy.

So knowing its causes and effects as well as controlling it, come under the study of macroeconomics.

Similarly, the problem of unemployment, economic growth, and development, etc. concern with the whole population of the nation and hence is covered under the study of macroeconomics.


Economy Quiz