Microeconomics and Macroeconomics

Microeconomics and Macroeconomics Assignment Help

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Microeconomics and Macroeconomics

Microeconomics is that branch of economic analysis which studies the behavior of individual economic units like individual consumer, the individual producer, the individual worker, the individual employer a given household or a particular firm. Microeconomics analyses as to how a particular consumer maximizes his profit or minimizes his cost or how a particular consumer maximizes his satisfaction with his resources. This branch of economics also deals with the process that determines the price of a particular commodity or reward for a particular factor of production.

Macroeconomics, on the other hand, deals with the economy as a whole and not with the individual economic entities. The macroeconomic analysis is concerned not with the individual consumer or individual producer, but with all the consumers taken together. In this branch of economics, we study the behavior of aggregates or sum total of various individual economic entities operating in the economy. To quote from Lipsey and Chrystal.

Macroeconomics is largely concerned with the behavior of economics aggregates, such as total national product, total investment, and exports for the entire economy. It is also concerned with the average price of all goods and services, rather than the prices for specific products. These aggregates result from activities in many different markets and from the behavior of different decision makers such as consumers, government and firms.

Macroeconomics, thus, is the study of relationship between broad economics aggregates. In the words of Boulding,

Macroeconomics does not deal with the individual quantities as such, but with aggregates of these quantities, not with individual incomes, but with national income, not with individual prices, but with the general price level; not with individual output, but with the national output.

The unit of study in microeconomics is only a part of an economy whereas macroeconomics studies an economy as a whole. Thus, for example, microeconomics explains how a single firm decides about the level of its output or price of the particular product that it produces, Macroeconomics, on the other hand, explains how the output of the economy as a whole and general price level are determined.

While microeconomics studies how an individual spends his income, macroeconomics is concerned with overall or aggregate expenditure in the economy as a whole. Thus, being concerned with the economy as a whole, macroeconomics analyses really big issues of economic life such as level of national income, fluctuations in output, income and employment, problems of inflation, deflation, etc.

In its approach to the study of the economy, microeconomics essentially assumes total output, total employment or total expenditure on all the goods and services as given. It then proceeds to examine how much output each firm will produce, how much labor and capital these individual firms will employ and how the prices of these goods produced by various individual firms will be determine. Thus, microeconomics is largely concerned with allocation of resources, output and employment among various production units on the assumption as given (total output of the economy as a whole), macroeconomics considers it as a prime variable whose size or value is to be determined. Similarly, while microeconomics assumes general price level to be given macroeconomics takes it as a variable.


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