Macroeconomics
Macroeconomics is the study of the performance, structure, behavior and decision-making of an
economy as a whole.
Macroeconomists focus on the national, regional, and global scales. For
most macroeconomists, the purpose of this discipline is to maximize
national income and provide national economic growth. Economists
hope that this growth translates to increased utility and an improved
standard of living for the economy’s participants. While there are
variations between the objectives of different national and
international entities, most follow the ones detailed below:
Circulation in Macroeconomics: Macroeconomics studies the performance
of national or global economies and the interaction of certain entities at the
these level.
Sustainability occurs when an economy achieves a rate of growth
which allows an increase in living standards without undue structural
and environmental difficulties.
Full employment occurs when those who are able and willing to have a
job can get one. Most economists believe that there will always be a
certain amount of frictional, seasonal and structural unemployment
(referred to as the natural rate of unemployment). As a result, full
employment does not mean zero unemployment.
Price stability occurs when prices remain largely stable and there is not
rapid inflation or deflation. Price stability is not necessarily zero
inflation; steady levels of low-to-moderate inflation is often regarded as
ideal.
External balance occurs when exports roughly equal imports over the
long run.
Equitable distribution of income and wealth among the economy’s
participants. This does not, however, mean that income and wealth are
the same for everyone.
Increasing Productivity over time throughout the national economy.
To achieve these goals, macroeconomists develop models that explain the
relationship between factors such as national income, output, consumption,
unemployment, inflation, savings, investment and international trade. These
models rely on aggregated economic indicators such as GDP,
unemployment, and price indices.
On the national level, macroeconomists hope that their models help address
two key areas of research:
the causes and consequences of short-run fluctuations in national
income, otherwise known as the business cycle, and
what determines long-run economic growth.
Microeconomics
Microeconomics deals with the economic interactions of a specific person, a
single entity or a company; it is the study of markets.
These interactions, which mainly are buying and selling goods, occur in
markets. Therefore, microeconomics is the study of markets. The two
key elements of this economic science are the interaction between
supply and demand and scarcity of goods.
Supply and Demand Graph: Microeconomics is based on the study of
supply and demand at the personal and corporate level.
One of the major goals of microeconomics is to analyze the market and
determine the price for goods and services that best allocates limited
resources among the different alternative uses. This study is especially
important for producers as they decide what to manufacture and the
appropriate selling price. Microeconomics assumes businesses are rational
and produce goods that maximizes their profit. If each firm takes the most
profitable path, the principles of microeconomics state that the market’s
limited resources will be allocated efficiently.
The science of microeconomics covers a variety of specialized areas of study
including:
Industrial Organization: the entry and exit of firms, innovation, and the
role of trademarks.
Labor Economics: wages, employment, and labor market dynamics.
Financial Economics: topics such as optimal portfolios, the rate of
return to capital, and corporate financial behavior.
Public Economics: the design of government tax and expenditure
policies.
Political Economics: the role of political institutions in policy.
Health Economics: the organization of health care system.
Urban Economics: challenges faced by cities, such as sprawl, traffic
congestion, and poverty.
Law and Economics: applies economic principles to the selection and
enforcement of legal regimes.
Economic History: the history and evolution of the economy.
Key Differences
Microeconomics focuses on individual markets, while macroeconomics
focuses on whole economies.
Stemming from Adam Smith’s seminal book, The Wealth of
Nations, microeconomic and macroeconomics both focus on the
allocation of scarce resources. Both disciplines study how the demand
for certain resources interacts with the ability to supply that good to
determine how to best distribute and allocate that resource among
many consumers. Both disciplines are about maximization:
microeconomics is about maximizing profit for firms, and surplus for
consumers and producers, while macroeconomics is about maximizing
national income and growth.
