Micro and macro economics definition and difference between them with easy examples
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Enhance your understanding of economics with comprehensive notes differentiating micro and macroeconomics. Delve into the intricacies of microeconomics, focusing on individual economic units like households and firms. Uncover the principles of supply and demand, exploring how they shape pricing and...
Microeconomics vs Macroeconomics: What’s the Difference?
Economics is the study of how people make choices and use resources to satisfy their
wants and needs. Economics can be divided into two main branches: microeconomics and
macroeconomics. These two branches study different aspects of the economy, but they are
also interrelated and complementary. In this article, we will explain the difference between
microeconomics and macroeconomics, and give some examples of each.
Microeconomics: The Study of Individual Choices and Actions
Microeconomics is the branch of economics that focuses on the choices and actions of
individual economic agents, such as consumers, firms, workers and households. It examines
how they interact with each other in markets, and how they respond to changes in prices,
incomes, costs, preferences, technologies and policies. Microeconomics also analyses how
the allocation of scarce resources affects the efficiency and welfare of the society.
Some examples of microeconomic topics are:
● How do consumers decide what to buy and how much to save?
This topic studies the behaviour and preferences of consumers, and how they
maximise their satisfaction or utility from consuming various goods and services. It
also analyses how consumers adjust their consumption and saving plans according
to their budget constraints and income levels.
● For example, suppose you have a fixed income of $1000 per month, and you can
spend it on two goods: food and clothing. How much of each good will you buy?
How will your choice change if the price of food increases or decreases? How will
your choice change if your income increases or decreases? How will your choice
affect your happiness and well-being?
● How do firms decide what to produce and how much to charge?
This topic studies the behaviour and objectives of firms, and how they maximise
their profits or minimise their losses from producing and selling various goods and
services. It also analyses how firms adjust their production and pricing decisions
according to their cost structures and market conditions.
For example,
● Suppose you own a pizza shop, and you can produce and sell pizzas at different
sizes and prices. How many pizzas will you make and sell? How will you set the
price of each pizza? How will your decision change if the cost of cheese or flour
increases or decreases? How will your decision change if the number of customers
, or competitors increases or decreases? How will your decision affect your profits
and losses?
● How do markets determine the prices and quantities of goods and services?
This topic studies the interaction and coordination of buyers and sellers in different
types of markets, such as perfect competition, monopoly, oligopoly and monopolistic
competition. It also analyses how the forces of demand and supply determine the
equilibrium price and quantity of a good or service, and how they change in
response to shifts in demand and supply curves.
For example,
● Suppose you want to buy a book, and there are many sellers who offer the same
book at different prices. How will you choose which seller to buy from? How will the
price and quantity of the book be determined by the market? How will the price and
quantity change if more buyers or sellers enter or exit the market? How will the
price and quantity change if the popularity or availability of the book changes?
How do wages and employment depend on the supply and demand of labour?
● This topic studies the behaviour and decisions of workers and employers in the
labour market, and how they determine the wage rate and the level of employment.
It also analyses how the labour market outcomes are affected by factors such as
education, skills, unions, discrimination, immigration and minimum wage laws.
For example,
● Suppose you are looking for a job, and there are many employers who offer different
jobs at different wages. How will you choose which job to apply for? How will the
wage and employment of each job be determined by the market? How will the
wage and employment change if more workers or employers enter or exit the
market? How will the wage and employment change if the demand or supply of
labour changes?
● How do taxes and subsidies affect the allocation of resources and welfare?
This topic studies the impact of government interventions, such as taxes and
subsidies, on the market outcomes and the welfare of the society. It also analyses
how taxes and subsidies affect the incentives and behaviour of consumers and
producers, and how they create deadweight losses and excess burdens.
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