Microeconomics and Macroeconomics

In this post, you’ll learn the difference between micro and macro economics, as well as specific examples of micro and macro economic it will show you the basic difference between the two concept.Microeconomics is the study of economics at an individual, group or company level.Microeconomics focuses on issues that affect individuals it implies studying the supply and demand for a specific product it also include wage determination in a company,household expenditure,individual income,output of particular firm.

But when we talk about macroeconomics it is the study of a national economy as a whole.It studies behaviour of aggregates of the economy as a whole.It include unemployment rates, the gross domestic product of an economy,inflation rate,supply of money in an economy and the effects of exports and imports etc.

Microeconomics is the study of economics at a smaller scale, while macroeconomics is the study of large-scale economic issues and problems.

Basis Microeconomics Macroeconomics Meaning It deals with individuals units of an economy It deals with aggregate of the economy Theory It include theories of factor pricing like theory of rent, wages, interest and profit It includes theory of price like theory of inflation, deflation and reflation. Tools Demand and supply Aggregate demand and aggregate supply Degree of Aggregation Limited degree of aggregation. Highest degree of aggregation. Aim Determine the price of a commodity or factor of production. Determine the income and employment level of economy. Assumptions Macro variable constant. Micro variable constant. Other name Price theory Employment theory. Business Application Applied to operational or internal issues. Environment and external issues.

Microeconomics and Macroeconomics both are Interdependent 

These two economic fields are somewhat similar and the issues they deal with collide .The subject matter of both help the government to study the economy on  individual ground  and as an aggregate.Let us see how micro depends upon the macro - Law of demand which is micro component has came into the existence from the analysis of the behaviour of a group/aggregate of people .And in the same way macroeconomics also depends on microeconomics like the national income of the country is nothing but the sum total of income of individuals of the country.
  Both the concept are interlinked and interdependent the study of one would be incomplete if the other is avoided.

Importance of Microeconomics

• Understanding operation of economy at a micro level - It helps us in understanding various market situations which are possible in any economy. It helps in understanding the economic reasons behind the decisions like – What to Produce- it include choice between capital goods and consumer goods. For whom to produce- it include the class i.e., to produce for rich or poor. How to Produce- it include the technology i.e., to go with labour intensive or with capital intensive technique.

• Optimum allocation of resource - The study of Microeconomics helps in understanding that how a firm or an industry can increase its production efficiency by optimum allocation of available resources.

• Reduction in Cost - It helps in the determination of optimum production point for a firm/industry.The theory also helps in determining the point at which the production cost is low.

• Understanding Consumer Behaviour -Law of Diminishing Marginal Utility, Revealed Preference Theory, Consumer Surplus, Indifference curves etc give useful insight into consumer behaviour and thus help in understanding and predicting the consumer behaviour in varied market situations.

• Demand Forecasting - The theory of Demand and elasticity of demand  help in understanding and forecasting demand of a product.

• Government Policy Making - The study of micro variable like demand, consumer equilibrium,production function,supply,producer equilibrium, market forms and price determination help the government in policy making at macro level. For example the study of microeconomics theory can help in deciding appropriate tax policy,policy related with employment,inflation rate, pricing policy of the public goods and services, impact of tax policy in reducing inequality of income and wealth between different group of society. 
• Foreign trade and exchange rate determination - Microeconomics theory of demand,elasticity of demand, supply, elasticity of supply help in understanding the impact of change in tariff on the terms of trade.It also helps in understanding the exchange rate determination process in the foreign exchange market.

• Maximisation of Social Welfare - The study of micro economics provides the basis for welfare economics. The entire structure of welfare economics has been built on price theory which is the constituent part of microeconomics. It shows how the relative prices of various products and factors are formed. It spells out the condition of efficiency and suggests how it can be achieved. These conditions can be of great help in raising the standard of living of the population. 

Importance of Macroeconomics

• Study of National Income - Macroeconomics help in understanding national income and other related variable.With the knowledge of macro variable the policy is formed for the nation.It help in social accounting and overall development of country.
•  Help in study of employment - It helps us understand the functioning of a complicated modern economic system. It describes how the economy as a whole functions and how the level of national income and employment is determined on the basis of aggregate demand and aggregate supply.
• Economic growth - It helps to achieving economic growth higher GDP and higher level of employment. It analyses the forces which determine economic growth of a country and explains how to reach the highest state of economic growth and sustain it.
• Stability in price level - It helps to bring stability in price level and observe fluctuations in business activities. It suggests policy measures to control inflation and deflation to stabilise the economy.
• Balance of payment  - It explains factors which determine balance of payments. At the same time, it identifies causes of deficit in balance of payments and suggests remedial measures.
• Economic policy - With a detailed knowledge of the functioning of an economy at macro level  it has been possible to formulate correct economic policies and also coordinate international economic policies which help in maintaining international relation and thereby helping the economy to grow.