Microeconomics vs Macroeconomics

Although they're both a worthy study of economic behaviors and trends, microeconomics and macroeconomics couldn't be more different. Microeconomics studies economics down to the level of the individual, while macroeconomics focuses on nations and the world.

Microeconomics

Microeconomics is the study of the economy as it affects individuals or small groups. It looks at supply and demand, wages, and other areas that drive personal buying choices. It's not just limited to the individual, microeconomics can study corporations, families, or any other unit of people who may or may not have similar purchasing habits.
It can also be used to contrast two groups, and predict larger macroeconomic trends.

One of the most important things that microeconomics studies is the behavior of corporations. For example, it might look at the production of a factory and determine how to maximize output, or it could look at the payroll for a company and determine where the inefficiencies are. Microeconomics is useful in a variety of situation where the most important thing that we're looking at is the individual or small groups.

Macroeconomics

Macroeconomics is more than just microeconomics writ large.  It has its own set of trends and rules that it uses to determine national and international trends. For instance, macroeconomics might examine the gross national product of a nation and look at how that affects which products it imports and exports. Macroeconomics is a useful tool for a range of different reasons.

One of the things that macroeconomics does best is to monitor and predict the rise and fall of global commodity trade. The entire commodities market is hand-in-hand with macroeconomics. That's not to mention things like unemployment and spending, which are also macroeconomic trends through and through.

Macroeconomics is sometimes called "Keynsian economics" after its founder, James Maynard Keynes. Although some disagree with the term, and others are uncertain about whether or not Keynes had anything new to add to modern economic theory.

The Bottom Line

The core difference between the two studies is that microeconomics takes a bottom-up approach, while macroeconomics takes a top-down look at the broader economy. Which is not to say that one has nothing to do with the other, the two form an interlocking discipline, and phenomena from one often bleeds over into the other. For example, the macroeconomic force of deflation can cause changes in microeconomic spending habits.

When we look at the economy as a whole, it's important to use both microeconomics and macroeconomics. We can learn a lot more about any given situation by breaking it down using both principles. When a factory decides how much of which good to produce, it's using both microeconomics and macroeconomics. It looks at which products are selling in which regions of the world, and tailors its manufacturing strategy based on that.

It stretches even further than that, though. Microeconomics tell us how companies make and spend their money, which shows us how the economy at large moves money around. The two terms represent completely different fields of economics, but they're inextricably linked together.
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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