Well, we all know economics is essential in our personal and professional life. It assists us in analyzing the past, present, and future.
The best example of this nowadays is Covid-19. This pandemic affected many lives and the livelihood of people. And of course, it affected the economy of many countries.
Thus, we can understand how important economics is in our daily life. An unstable economy leads to poverty, unemployment, corruption, and other critical problems.
However, in this blog, we discuss what economics is, and we learn about its types. We will discuss the difference between both types as well.
Okay, let’s start with the definition of Economics.
What exactly is economics?
Economics is the subject of how individuals, businesses, and governments make decisions about allocating resources to fulfill their needs. Through economics, these groups determine how the resources organize and coordinate to achieve maximum output. They are mainly connected with the production, distribution, and consumption of goods and services.
Economics is separated into two kinds: Microeconomics and Macroeconomics.
Microeconomics generally focuses on individual consumers and businesses. In contrast, Macroeconomics deals with the behavior of the whole economy.
Let’s discuss both parts briefly.
Microeconomics is a portion of economics. It examines the role of individuals and businesses in decision-making. It makes decisions of the allocation of scarce resources and their prices of goods and services. It considers the taxes, regulations, and government legislation.
Microeconomics focuses on the demand and supply and other forces that determine price levels in the economy. In another word, microeconomics tries to understand human choices, decisions, and the allocation of resources.
The primary purpose of microeconomics is to examine how the company maximizes its production and capacity to lower the price and compete in the industry.
The chief factor of Microeconomics is as follows:
- Demand, Supply, and Equilibrium
- Production Theory
- Cost of Production
- Labour Economics
Examples of microeconomics are individual demand and the price of products.
Macroeconomics is the study of the production, composition, behavior, and decision-making of an economy as a whole. It studies the national income, total employment, and total demand and supply.
Macroeconomics examines how an expansion or reduction in net exports impacts the nation’s capital amount. Or how the unemployment rate affects GDP (Gross Domestic Product).
The chief purpose of macroeconomics is to maximize national income. It also provides national income growth.
The chief concepts covered under Macroeconomics are as follows:
- Capitalist Nation
- Investment Expenditure
Examples of Microeconomics are aggregate demand and national income.
So, next, let’s discuss the difference between both Microeconomics and Macroeconomics.
Difference between Microeconomics and Macroeconomics
|Points of Difference||Microeconomics||Macroeconomics|
|Purpose||It studies the individual unit of an economy.||It analyzes the economy as a whole.|
|Fields of Study||It studies individual economic units. Such as a consumer, a firm, an industry, a household, etc.||It studies the national aggregate. Such as national income, national output, general price level, etc.|
|Obstacles||It deals with micro problems. Like the determination of the commodity’s price, the satisfaction of a consumer, etc.||It deals with big problems. Like obstacles of employment, trade cycles, international trades, economic growth, etc.|
|Nature||It is based on the disaggregation of units. It considers the individual difference between various units.||It is based on the aggregation of units. It does not consider the individual difference in various aggregations.|
|Objectives||Maximize utilityMaximize profitsReduce costsStatic Analysis||Full employment Price StabilityEconomic GrowthFavorable balance of payment situation|
|Method||Does not explain the time element, equilibrium conditions measured at a certain period.||Dynamic analysis based on time lags, rates of change, past and expected values of variables.|
|Deals With||Microeconomics deals with various issues. Like demand, supply, price factor, product pricing, production, consumption, etc.||It deals with national income, distribution, employment, general price level, and more.|
|Business Application||It applied to internal issues.||This applied to environmental and external issues.|
|Significance||It helps regulate the price of factors and the factor’s price of production (land, labor, entrepreneur, capital, and more) in the economy.||It maintains stability and solves the major issues of the economy. Like inflation, deflation, rising prices, unemployment, and poverty as a whole.|
|Limitations||Lack of knowledge of whole economics Not appropriate for the entire economy Based on unreliable opinions It cannot study some economic problems.||Importance not given to individual units Possibility of the wrong prediction Difficult to find out micro quantities No attention to structure and composition of the group|
Thus, we have discussed the concept of Microeconomics and Macroeconomics. Both terms are helpful in discussing the economy of the nation. These two concepts are not opposite but parallel to each other. They are bound to go together. I hope this blog helps you in learning Microeconomics and Macroeconomics.