This article briefly discusses the differences between microeconomics and macroeconomics and their interconnection. Microeconomics and macroeconomics are the two branches of economics. A German economist, Ragnar Fisch first coined and used these two terminologies in 1933. Micro and Macro have been derived from the Greek words ‘mikros’ meaning ‘small’ and ‘makros’ meaning ‘large’. The terms microeconomics and macroeconomics are now being widely used in economic studies.
Difference between Microeconomics and Macroeconomics
Microeconomics studies economic behavior of individual economic entities and individual economic variables. In this context, economic entities means individuals or small group of individuals such as household firms and industries consisting of several firms. Hence, it microeconomics is the study of individual firms and households, individual prices, wages, incomes, individual industries and individual commodities.
In contrast, macroeconomics is concerned with the nature, relationship, and behavior of aggregate economic variables such as national income, total consumption, savings and investment, total employment, general price level, and aggregate demand and supply. The fact that macroeconomics deals with aggregate quantities, it is also called aggregative economics.
A key difference between microeconomics and macroeconomics is their study area; microeconomics studies individual economic variables whereas macroeconomics deals with aggregate economic variables.
Other difference between them can be presented in following table:
| S.N | Microeconomics | Macroeconomics |
|---|---|---|
| 1. | Study of a particular and individual component of the economy such as individual firms, households, industry. | Study of the economy in totality. Deals with aggregate variables as national income, general price level. |
| 2 | Concerned with the production, distribution, and consumption of goods and services. | Concerned with the economic growth, macro theory of distribution, theory of income output and employment. |
| 3 | Uses individual demand and supply as tools of analysis. | Uses aggregate demand and supply as tools of analysis. |
| 4 | Narrow scope. | Wider scope. |
| 5 | Objective is to maximize welfare of individuals and firms. | Objective is to maximize national income and growth. |
| 6. | Deals with markets. | Deals with the economy as a whole. |
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Therefore, the basic difference between microeconomics and macroeconomics is in terms of area, scope, and scale of the subjects being studied.
Interconnection Between Microeconomics and Macroeconomics
These two branches of economics are not mutually exclusive but they are interconnected and complement one another despite there differences in nature and scope. Economics is a single field of study which is divided in these two areas for the convenience in classifying the economic theories that deals with different economic phenomena. Following points help to understand how are microeconomics and macroeconomics interconnected:
- A full understanding of complex economic system is possible only after having knowledge of both micro and macroeconomics. For example, problem of economic growth requires knowledge not only macroeconomic theories such as theories of consumption, saving and investment, and fiscal theories but also microeconomic theories like production, distribution and consumption theories.
- Micro and macroeconomics adopt a similar approach, which is demand and supply and the equilibrium between them, for the analysis of economic problem of their respective areas. While microeconomics studies demand and supply of a particular commodity ( also called quantity supply and demand), macroeconomics studies demand and supply in the economy as a whole which consists of all goods and services (also called aggregate demand and supply).
- Aggregates are the resultant of many decisions by consumers and firms. So that the knowledge of micro theories helps the understanding of macroeconomic models.
It is also said that, it may be possible to study microeconomics with-out reference to macroeconomics, but it is not possible to study macroeconomics without reference to microeconomics; and this shows the strong interconnection between them.
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Conclusion
Economics is a distinct discipline of study which is classified into two branches called micro and macro economics. These two have not only differences but also some similarities. Micro deals with individual economic variables and macro deals with aggregate variables but they are interconnected and interrelated for the complete understanding of economic problems and solving them.
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FAQ
What is an example of microeconomics and macroeconomics?
Examples of microeconomics studies are firms and households, individual prices, wages, incomes, individual industries, and individual commodities whereas the examples of macroeconomic studies are national income, total consumption, savings and investment, total employment, general price level, and aggregate demand and supply.
Which comes first micro or macro economics?
Both the micro and macro economics came with the evolution of economics because these are the divisions of economics for the convenience study. Generally microeconomics comes first in the formal academic courses followed by macroeconomics in next academic session.
Who is the father of macroeconomics?
John Maynard Keynes(1883–1966), a british economist active in the early 20th century, is the father of contemporary macroeconomics. His work is also recognized as Keynesian economics.
Who is the father of microeconomics?
Alfred Marshall(1842-1924) is considered as the father of microeconomics. He was born in London.
