What’s the difference between micro and macro economics? These two economic disciplines can see confusing at first glance, but once you learn their focus it’s easy to differentiate microeconomic issues and questions from macroeconomic ones.
In this blog post, you’ll learn the difference between micro and macro economics, as well as specific examples of micro and macro economic problems. Read on to learn the basics of microeconomic and macroeconomic thought, study and analysis.
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Microeconomics vs. macroeconomics
The difference between micro and macro economics is simple. Microeconomics is the study of economics at an individual, group or company level. Macroeconomics, on the other hand, is the study of a national economy as a whole.
Microeconomics focuses on issues that affect individuals and companies. This could mean studying the supply and demand for a specific product, the production that an individual or business is capable of, or the effects of regulations on a business.
Macroeconomics focuses on issues that affect the economy as a whole. Some of the most common focuses of macroeconomics include unemployment rates, the gross domestic product of an economy, and the effects of exports and imports.
Does this make sense? While both fields of economics often use the same principles and formulas to solve problems, microeconomics is the study of economics at a far smaller scale, while macroeconomics is the study of large-scale economic issues.
Both fields of economics are interdependent
At first glance, micro and macro economics might seem completely different from one another. In reality, these two economic fields are remarkably similar, and the issues they study often overlap significantly.
For example, a common focus of macroeconomics is inflation and the cost of living for a specific economy. Inflation is caused by a variety of factors, ranging from low interest rates to expansion of the money supply.
While this might seem like a purely macroeconomic field of study, it’s actually one that’s very important in microeconomics. Since inflation raises the price of goods, services and commodities, it has serious effects for individuals and businesses.
On a microeconomic level, this has several effects. Businesses are forced to raise their prices in response to the increased cost of materials. They also need to pay their employees more over the long term to account for the higher cost of living.
This is just one example of a macroeconomic phenomenon – in this case, inflation and a rising cost of living – affecting a microeconomic one. Other macroeconomic decisions, such as the creation of a minimum wage or tariffs for certain goods and materials, have significant microeconomic effects.
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Examples of microeconomic issues
Microeconomics seeks to solve problems on a small level. Some economics like to describe microeconomics as the study of economics and behavior from the bottom up, since it’s focused on the effects of low-level decisions on the economy.
An example of a microeconomic issue could be the effects of raising wages within a business. If a large business raises its wages by 10 percent across the board, what is the effect of this policy on the pricing of its products going to be?
Since the cost of producing products has increased, the price of these products for consumers is likely to follow suit. Likewise, what will happen if a company raises wages for its most productive employees but fires its least productive workers?
These are the type of questions microeconomics aims to solve. Microeconomics is also useful for studying the effects of your own decisions. One of the most common principles in microeconomics is opportunity cost.
Opportunity cost is the value of making one decision over another. A decision that involves economy cost is the choice of one meal instead of another: by choosing a certain food, you miss out on the benefits offered by another.
Choices involving opportunity cost could relate to your career. By choosing one job over another, you may gain opportunities but lose others. In addition to factors like supply and demand, opportunity cost is one of the principles of microeconomics.
Learn more about opportunity cost, including several examples of the opportunity cost of career choices and buying decisions, in our blog post on the opportunity cost formula.
Due to the narrow focus of macroeconomics, it’s an incredibly valuable skillset for making decisions in your own life. Learn more about intelligent decision making in our Cognitive Biases: Learn to Master Decision Making course.
Examples of macroeconomic issues
While microeconomics focuses on the effects a certain decision has on individuals and businesses, macroeconomics looks at the bigger picture. In macroeconomics, a common issue is the effects of certain policies on the national or regional economy.
For example, while a microeconomist might study the effects of low interest rates on individual borrowers, a macroeconomist would observe the effects that low interest rates have on the national housing market or the unemployment rate.
Another common focus of macroeconomics is the way taxes affect the economics of a nation. A macroeconomist would look at the effects of a decrease in income taxes using measures like GDP and national income, rather than individual factors.
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The importance of a balanced economics education
Microeconomics and macroeconomics have a lot in common, and the skills used to solve small-scale economic issues are often identical to those used to find solutions to large-scale economic problems.
Learn the impact of economic variables on small firms, individuals, households and the economy as a whole in our Micro & Macro Economics course. Designed for new economics students, this in-depth course is an excellent introduction to macro and micro economics.