Firstly, let’s discuss the basic meaning of microeconomics and macroeconomics.
Microeconomics is the study of small groups of society including the study of the decision making of the individuals such as consumers, firms, households etc. in allocating of resources. The approach of microeconomics is both practical as well as theoretical. It focuses on solving the three major problems of an economy i.e. what to produce, how to produce and for whom to produce.
The word micro in microeconomics is derived from the Greek word ‘mikros’ which means small. Microeconomics is the branch of economics that involves study of human behavior related to the decision making of allocation of scarce resources by the individuals, consumers, resource owners etc. We can also refer to the study of microeconomics as the price theory as microeconomics majorly focuses on the study of determination of prices of products and factors.
Macroeconomics is the study of the performance and behavior of the larger groups in the economy as it involves study of overall national and international economy. It focuses on the study of problem of employment, GDP, investment, government fiscal & monetary policy, consumption, economic growth, level of inflation, recessions, depressions etc.
The word ‘Macro’ in the macroeconomics is derived from the Greek word ‘makros’ that means large. The study of macroeconomics focuses on overall economic phenomena, national income and how the large scale market systems behave and also helps to solve the problems that prevails in the economy such as unemployment, monetary problems, problems of inflation, economic fluctuations etc. The concept of macroeconomics assumes that the micro variables such as individual behavior on the price of goods & services, decisions of individual & firms etc. are constant. The area and scope of macroeconomics is most vital and controversial as compared to the other fields of economics.
Now look at the difference between the microeconomics and macroeconomics:
|Other Name||Price Theory||Income & Employment Theory|
|Definition||The microeconomics involves study of economic variables at small level of the economy such as study of behavior of the individual units like households, consumers, firms etc. in taking decisions regarding the allocation of scarce resources.||The macroeconomics involves study of economic variables at larger levels of the economy such as studying the behavior of the companies, government organization in taking the decisions for the economy as a whole.|
|Variables involved||Variables involved include price, rent, wages, consumer demand, profit, cost, revenue of the firm etc.||Variables involved include aggregate demand & supply, poverty, unemployment, inflation, illiteracy etc.|
|Subject matter||Pricing of product & servicesFactor PricingWelfare economics||Theory of income & employmentTheory of General price level & inflationTheory of economic growthTheory of distribution|
|Analysis Tool||The tool of analysis is demand & supply||The tool of analysis is aggregate demand & supply|
|Objective||The main objective of microeconomics is determination of prices of goods & services and factors of production||The main objective of microeconomics is to determine the level of employment and income in the economy.|
|Assumptions||Basic Assumptions in microeconomics is that it assumes that the economic variables of macroeconomics remain constant such as national income, savings, consumption are constant.||Basic Assumptions in macroeconomics is that it assumes that the economic variables of microeconomics remain constant such as decisions of the individual units and the prices of individual goods & services remains constant.|