Difference between microeconomics and macroeconomics | Economics Help
What is the difference between micro and macroeconomics? - Micro Macro deals with whole economy - GDP, inflation, trade. offering different explanations (e.g. Keynesian, Monetarist, Austrian, Real Business cycle e.t.c). General price level in economy and inflation, money supply, cost of The Relationship Between Microeconomics and Macroeconomics. What is the difference between microeconomics and macroeconomics? of particular agents within the economy, like households, workers, and business firms.
Beginners’ Guide to Micro and Macro Economics
Instead, in micro-economics, we discuss equilibrium of innumerable units of the economy piecemeal and their inter-relationship with each other.
As an example, in micro-economic analysis, we study the demand of an individual consumer for a commodity and from there go on to derive the market demand for the commodity.
Similarly, micro-economic theory studies the behaviour of the individual firms in regard to a fixation of price and output and their reactions to the changes in the demand and supply conditions. Micro-economic theory takes the total quantity of resources as given and seeks to explain how they are assigned to the production of different.
Allocation of resources determines what goods shall be produced and how they shall be produced. In a free market economy, the allocation of resources to the production of various goods depends upon the prices of the various goods and prices of the various resources or factors of production. Hence, micro-economics proceeds to analyses how the relative prices of goods and factors are determined in order to explain how the allocation of resources is determined.
Therefore, the theory of product pricing and theory of factor pricing or the theory of distribution fall within the domain of micro-economics. The demand for goods depends upon the behaviour pattern of the consumer, and the supply of goods depends upon the conditions of production and cost nd the behaviour pattern of the firms.
Difference Between Microeconomics & Managerial Economics
Hence, the demand and supply sides have to be analyzed in order to explain the determination of prices of goods and factors. Microeconomics is concerned with issues such as the impact of an increase in demand for cars. This micro economic analysis shows that the increased demand leads to higher price and higher quantity. Macro economic analysis This looks at all goods and services produced in the economy. The macro diagram is looking at Real GDP which is the total amount of output produced in the economy instead of quantity.
Instead of the price of a good, we are looking at the overall price level PL for the economy.
Beginners’ Guide to Micro and Macro Economics
Instead of just looking at individual demand for cars, we are looking at aggregate demand AD — total demand in the economy. Macro diagrams are based on the same principles as micro diagrams; we just look at Real GDP rather than quantity and Inflation rather than Price Level PL The main differences between micro and macro economics Small segment of economy vs whole aggregate economy.
Microeconomics works on the principle that markets soon create equilibrium. In macro economics, the economy may be in a state of disequilibrium boom or recession for a longer period.
There is little debate about the basic principles of micro-economics. Macro economics is more contentious.
There are different schools of macro economics offering different explanations e. Keynesian, Monetarist, Austrian, Real Business cycle e. Macro economics places greater emphasis on empirical data and trying to explain it.
Micro economics tends to work from theory first. Differences between microeconomics and macroeconomics The main difference is that micro looks at small segments and macro looks at the whole economy. But, there are other differences. If demand increases faster than supply, this causes price to rise, and firms respond by increasing supply.
For a long time, it was assumed that the macro economy behaved in the same way as micro economic analysis. Great Depression and birth of Macroeconomics In the s, economies were clearly not in equilibrium. There was high unemployment, output was below capacity, and there was a state of disequilibrium. Keynes produced his The General Theory of Employment, Interest and Money; this examined why the depression was lasting so long.
It examined why we can be in a state of disequilibrium in the macro economy.