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Key Differences

Know the Differences & Comparisons

Difference Between Micro and Macro Economics

micro vs macro economicsMicro Economics talks about the actions of an individual unit, i.e. an individual, firm, household, market, industry, etc. On the other hand, the Macro Economics studies the economy as a whole, i.e. it assesses not a single unit but the combination of all i.e. firms, households, nation, industries, market, etc.

‘Economics’ is defined as the study of how humans work together to convert limited resources into goods and services to satisfy their wants (unlimited) and how they distribute the same among themselves. Economics has been divided into two broad parts i.e. Micro Economics and Macro Economics. There are two broad categories into which Economics is classified, i.e. Micro Economics and Macro Economics.

Here, in the given article we’ve broken down the concept and all the important differences between microeconomics and macroeconomics, in tabular form, have a look.

Contents: Micro Economics Vs Macro Economics

  1. Comparison Chart
  2. Definition
  3. Key Differences
  4. Video
  5. Pros and Cons
  6. Interdependency
  7. Conclusion

Comparison Chart

Basis for ComparisonMicroeconomicsMacroeconomics
Meaning The branch of economics that studies the behavior of an individual consumer, firm, family is known as Microeconomics.The branch of economics that studies the behavior of the whole economy, (both national and international) is known as Macroeconomics.
Deals withIndividual economic variablesAggregate economic variables
Business ApplicationApplied to operational or internal issuesEnvironment and external issues
ToolsDemand and SupplyAggregate Demand and Aggregate Supply
AssumptionIt assumes that all macro-economic variables are constant.It assumes that all micro-economic variables are constant.
Concerned withTheory of Product Pricing, Theory of Factor Pricing, Theory of Economic Welfare.Theory of National Income, Aggregate Consumption, Theory of General Price Level, Economic Growth.
ScopeCovers various issues like demand, supply, product pricing, factor pricing, production, consumption, economic welfare, etc.Covers various issues like, national income, general price level, distribution, employment, money etc.
ImportanceHelpful in determining the prices of a product along with the prices of factors of production (land, labor, capital, entrepreneur etc.) within the economy.Maintains stability in the general price level and resolves the major problems of the economy like inflation, deflation, reflation, unemployment and poverty as a whole.
LimitationsIt is based on unrealistic assumptions, i.e. In microeconomics it is assumed that there is a full employment in the society which is not at all possible.It has been analyzed that 'Fallacy of Composition' involves, which sometimes doesn't proves true because it is possible that what is true for aggregate may not be true for individuals too.

Definition of Micro Economics

Microeconomics is the branch of economics that concentrates on the behaviour and performance of the individual economic agents within the economy such as consumers, family, industry, firms, etc. It ascertains how the limited resources are allocated among various individuals to satisfy their wants? As well as it specifies the conditions for the best possible utilization of the resources, in order to attain maximum output and social welfare.

Here, the demand plays a key role in determining the quantity and the price of a product along with the price and quantity of related goods (complementary goods) and substitute products, so as to make a judicious decision regarding the allocation of scarce resources, concerning their alternative uses.

Microeconomics analyzes how individuals and households spend their income? How do people decide what amount to save for future contingencies? What set of goods and services best fulfils their needs and wants, in the limited income?

It also determines what products and how many products the firm should manufacture to sell? At what price the firm should offer its goods and services to the target audience? What sources of finance are to be used by the firm to commence or operate the business? How many and at what rate the workers are to be hired to work for the firm? When should the firm expand, downsize and close the business?

Definition of Macro Economics

In macroeconomics, the entire economic phenomena or the overall economy is talked about. Basically, it focuses on the behaviour and performance of aggregate variables and those issues which affect the whole economy.

It includes regional, national and international economies and covers the major areas of the economy like unemployment, poverty, general price level, total consumption, total savings, GDP (Gross Domestic Product), imports and exports, economic growth, globalisation, monetary/ fiscal policy, etc.

Here we discuss, how the equilibrium is attained as a result of changes in the macroeconomic variables. It ascertains the level of economic activity in the economy? What is the rate of unemployment, poverty and inflation in the country? What are the issues that result in speeding up or slowing down of the economy? What is the standard of living of people in the country? What is the cost of living in the country?

Further, macroeconomics not only discusses issues with which the economy goes through but also helps in resolving them, thereby enabling it to function efficiently.

Key Differences between Micro and Macro Economics

The points given below explains the difference between micro and macro economics in detail:

  1. Microeconomics studies the particular segment of the economy, i.e. an individual, household, firm, or industry. It studies the issues of the economy at an individual level. On the other hand, Macroeconomics studies the whole economy, that does not talk about a single unit rather it studies aggregate units, such as national income, general price level, total consumption, etc. It deals with broad economic issues.
  2. Microeconomics stresses on individual economic units. As against this, the focus of macroeconomics is on aggregate economic variables.
  3. Microeconomics is applied to operational or internal issues, whereas environmental and external issues are the concern of macroeconomics.
  4. The basic tools of microeconomics are demand and supply. Conversely, aggregate demand and aggregate supply are the primary tools of macroeconomics.
  5. Microeconomics deals with an individual product, firm, household, industry, wages, prices, etc. Conversely, Macroeconomics deals with aggregates like national income, national output, price level, total consumption, total savings, total investment, etc.
  6. Microeconomics covers issues like how the price of a particular commodity will affect its quantity demanded and quantity supplied and vice versa. In contrast, Macroeconomics covers major issues of an economy like unemployment, monetary/ fiscal policies, poverty, international trade, inflationary increase in prices, deficit, etc.
  7. Microeconomics determine the price of a particular commodity along with the prices of complementary and the substitute goods, whereas the Macroeconomics helps maintain the general price level, as well as it helps in resolving major economic issues like inflation, deflation, disinflation, poverty, unemployment, etc.
  8. While analysing any economy, microeconomics takes a bottom-up approach, whereas the macroeconomics considers a top-down approach.

Video: Micro Economics Vs Macro Economics

Micro Economics

Pros:

  • It helps in the determination of prices of a particular product and also the prices of various factors of production, i.e. land, labour, capital, organisation and entrepreneur.
  • It is based on a free enterprise economy, which means the enterprise is independent to take decisions.

Cons:

  • The assumption of full employment is completely unrealistic.
  • It only analyses a small part of an economy while a bigger part is left untouched.

Macro Economics

Pros:

  • It helps determine the balance of payments along with the causes of deficit and surplus of it.
  • It helps in deciding the economic and fiscal policies and solves the issues of public finance.

Cons:

  • Its analysis says that the aggregates are homogeneous, but it is not so because sometimes they are heterogeneous.
  • It covers only the aggregate variables which avoid the welfare of the individual.

Interdependency

As microeconomics focuses on the allocation of limited resources among the individuals, the macroeconomics examines that how the distribution of limited resources is to be done among many people, so that it will make the best possible use of the scarce resources. As microeconomics studies about the individual units, at the same time, macroeconomics studies about the aggregate variables.

Both are of the view that the nation’s economic welfare is possible only when there is the best possible utilization of productive resources. In this way, we can say that they are interdependent. Further, to have a full understanding of economics, the study of both the two branches is pertinent.

Conclusion

Micro and Macro Economics are neither different subjects, nor they are contradictory, rather, they are complementary. As every coin has two aspects – micro and macroeconomics are also the two aspects of the same coin, wherein one’s demerit is others merit and in this way, they cover the whole economy. The only important point which makes them different is the area of application.

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Comments

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  5. ANONYMOUS says

    December 4, 2016 at 11:18 pm

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  6. Kaspersuresh says

    April 20, 2017 at 8:26 pm

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  7. yash says

    December 6, 2017 at 7:10 am

    this really helped me…today is my test on micro and macro economics

    Reply
  8. Sowndar says

    December 12, 2017 at 12:25 pm

    Thanks for the detailed answer I gained got knowledge about micro and macroeconomics …….thank you once again

    Reply
  9. jennifer theron says

    February 24, 2018 at 2:57 pm

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  10. Rishabh Bhatt says

    March 28, 2018 at 8:31 pm

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    April 22, 2018 at 7:55 am

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  15. sapna says

    July 10, 2018 at 2:55 pm

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  16. Tai Chinh says

    October 14, 2018 at 11:53 pm

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  17. p karri says

    December 16, 2018 at 10:06 pm

    very useful blog i learnt some thing new very easily

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  18. vinish parikh says

    January 13, 2019 at 11:03 am

    Nicely Explained as the majority of economic students gets confused between both the terms, but you have explained this topic very well. Thanks for sharing the article.

    Reply
  19. brian onesmus says

    February 1, 2019 at 4:03 pm

    good work……well understood.thanks.

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  20. Raz Mohammad likhon says

    July 16, 2019 at 8:34 am

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  21. sunil Kumar says

    July 23, 2019 at 12:06 am

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  22. Nellie says

    July 25, 2019 at 7:39 pm

    Thanks for a simple clarification

    Reply
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    November 28, 2019 at 4:05 pm

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    November 2, 2020 at 8:56 pm

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    March 26, 2021 at 2:00 pm

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  27. esmaaih says

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    February 5, 2023 at 2:39 pm

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