ECONOMICS

DIFFERENCE BETWEEN MICCRO ECONOMICS AND MACRO ECONOMICS

Microeconomics V/S Macroeconomics
Economics is broadly divided into two different categories namely microeconomics and macroeconomics.
Microeconomics is the study of specific segments and markets of an economy. It looks at the issues like
consumer behaviour, individual labour market, and theory of firms. On the other hand, macroeconomics is
the study of the whole economy. It looks at the aggregate variables such as aggregate demand, national
output, and inflation. Read the article below to know more about the difference between Microeconomics
and Macroeconomics with examples.

What is Microeconomics?
Microeconomics focuses on the choices made by individual consumers as well as businesses concerning the
fluctuating cost of goods and services in an economy. Microeconomics covers several aspects, such as –

 Supply and demand for goods in different marketplaces.

 Consumer behaviour, as an individual or as a group.

 Demand for service and labour, including individual labour markets, demand, and determinants like
the wage of an employee.
One of the main features of microeconomics is it focuses on casual situations when a marketplace
experiences certain changes in the existing conditions. It takes a bottom-up approach to analyse the economy.

What are the Different Components of Microeconomics?

The different components of microeconomics include:

 Market demand and supply (For example Textile)

 Consumer Behaviour ( for example Consumer Choice Theory)

 Producers are driven by individual preferences.

 Market-specific labour markets ( For example demand labour wage determination in specific
markets).

What is Macroeconomics?

Macroeconomics studies the economic progress and steps taken by a nation. It also includes the study of
policies and other influencing factors that affect the economy as a whole. Macroeconomics follows a top-
down approach, and involves strategies like –

 The overall economic growth of a country.

 Reasons that are likely to influence unemployment and inflation.

 Fiscal policies are likely to influence factors like interest rates.

 Effect of globalization and international trade.

 Reasons that affect varying economic growths among countries.

Another feature of macroeconomics is that it focuses on aggregated growth and its economic correlation.
What are the Different Components of Macroeconomics?

The different components of macroeconomics include:

 National Output

 Unemployment

 Inflation

How do Microeconomics and Macroeconomics Interdependent on Each Other?

The two parts of Economics i.e. microeconomic and macroeconomics are not interrelated but are mutually
exclusive. A close connection exists between the two terms. All microeconomic studies can analyse the better
understanding of micro and macroeconomics variables. Such a study will help in the formulation of economic
policies and programs. As we know, changes and processes in the economy are a result of both small and
large-scale elements which retain the capacity to affect each other or are directly affected by each other. For
example: Although the tax increase is a macroeconomic decision, its impact on firms ' savings is a
microeconomics analysis.

Let us understand another example: if we know how the price of any commodity is determined and what is
the role of buyer and seller in the price determination then it would help us in analysing the changes that take
place in the general price level for all commodities in the economy as a whole. A study of determining the
price of a commodity and the role of buyers and sellers in this process is known as microeconomics whereas
the study of the general price level in economics is a macroeconomic process. Similarly, if we want to
determine the performance of an economy we will first have to find out the performance of each sector of
the economy, and to find out the performance of each sector of the economy we have to find out the
performance of each sector individually or in groups. A study of each sector of a production unit or each
group is a microeconomics study whereas the study of all the production units of all the sectors is a
macroeconomics study. Hence, microeconomics and macroeconomics are two interrelated parts of
economics. Therefore, the study of both terms is important in economics.
Difference between Microeconomics and Macroeconomics

S. No Microeconomics Macroeconomics

Macroeconomics studies a nation’s

1. Microeconomics studies individual economic units economy, as well as its various
aggregates.

Macroeconomics is the study of

Microeconomics primarily deals with individual income,
2. aggregates such as national output,
output, price of goods, etc.
income, as well as general price levels.

Microeconomics focuses on overcoming issues Macroeconomics focuses on upholding

3. concerning the allocation of resources and price issues like employment and national
discrimination. household income.

Macroeconomics account for the

Microeconomics accounts for factors like the demand
4. aggregate demand and supply of a
and supply of a particular commodity.
nation’s economy.

Microeconomics offers a picture of the goods and

Macroeconomics helps ensure
services that are required for an efficient economy. It
5. optimum utilization of the resources
also shows the goods and services that might grow in
available to a country.
demand in the future.

Macroeconomics help determine the

Microeconomics helps to point out how equilibrium can
6. equilibrium levels of employment and
be achieved at a small scale.
income of the nation.

Microeconomics also focuses on issues arising due to The primary component of

7.
price variation and income levels. macroeconomic problems is income.

Examples of Microeconomics and Macroeconomics

Examples of Microeconomics

 Price determination of a particular commodity.

  Consumer equilibrium.

 Output generated by an individual organization.

 Individual income and savings.

Examples of Macroeconomics

 National income and savings.

 General price level.

 Aggregate demand and Aggregate Supply

 Poverty.

 Rate of unemployment

Effect of Micro and Macro Economics

Any changes in these categories have a direct impact on a country’s economy. Several factors affect it; let’s
take a look

Decision Making

Uncontrollable external factors such as changes in interest rate, regulations, number of competitors present
in the market, cultural preferences, etc. play a key role in influencing an organization’s strategies and
performance. These can have a cumulative effect on a nation’s economy as well.

Economic Cycles

Experts consider macroeconomics as a cyclic design. Higher demand levels, personal income, etc. can
influence price levels, which in turn can affect a nation’s economy. Contrarily, when supply outweighs
demand, the cost of daily goods reduces. This pattern continues until the next cycle of supply and demand.

Price of Products and Services

The primary goal of an organization is to keep costs at the minimum and increase the profit margin. The cost
of labour is one of the highest expenses incurring factors in microeconomics, thereby directly affecting the
overall cost of production and retail.

Did You know?

 The founding father of Macroeconomics ‘John Maynard Keynes’ wrote the General Theory of Interest,
Employment, and Money in 1936.
  Alfred Marshall is regarded as the founding father of Microeconomics.

 The Economist John Maynard Keynes tried to merge microeconomics and macroeconomics by
introducing a microeconomics foundation for the macroeconomics model. The reason behind these
efforts is the belief that individual households and businesses act in their best interests.

 Microeconomics study is determined by the method known as Partial Equilibrium whereas

Macroeconomics study is determined by the method known as Quasi General Equilibrium Analysis.

 Microeconomics study is applied in the field of agricultural economics, international economics,

labour economics, comparative economics, consumer economics, regional economics, welfare
economics, aspects of public finance, and other fields. On the other hand, Macroeconomic studies are
applied in the fields of formulation and execution of economic policies, studying economic
development, understanding microeconomics, welfare studies, the study of inflation and deflation
studies, and even international comparisons lie in the study of macroeconomics.

Conclusion

Although there are some dissimilarities between Micro economics and Macro economics, both are important
and need to be understood to get a comprehensive knowledge of economics. To understand the domestic
economy is important but at the same time it is also important to understand the household economy and
the economy as a whole as it helps to to set a nation's economic policy.

DIFFERENCE BETWEEN POSITIVE ECONOMICS AND NORMATIVE ECONOMICS

What is Positive Economics?

Positive Economics is a part of economics that contemplates the explanation and elucidation of economic
occurrence. It concentrates on certainty and cause-and-effect behavioural association, and incorporates the
development and trial of economics thesis. It is the study of economics grounded on the intentional analysis.
Today most economists concentrate on the positive economic analysis, which follows what is and what has
been materialising in an economy as the rationality for any statement about the upcoming days. Positive
economics stands in contradiction to normative economics, which uses value discernment.

What is Normative Economics?

Normative economics is an outlook on economics that contemplates normative or ideologically dictatorial,

discernment toward economic enhancement, statements, investment projects and framework. Disparate to

positive economics, which depends on intentional data analysis, normative economics decisively solicitude

itself with value discernment and statements of ‘what has to be’ rather than certitude based on cause-and-

effect declarations. Normative economics manifests ideological judgement about what may be the outcome in

an economic pursuit if public policy changes are made.

Difference between Positive and Normative Economics

Parameters Positive Economics Normative Economics

Meaning A part of economics grounded on A part of economics grounded on values,

information and certainty is positive perspectives, and discernment is normative
economics. economics.

Nature Illustrative Dictatorial

Outlook Objective Subjective

Deals with What actually is? What has to be?

Testing (Trial) Statements can be tested Statements cannot be tested

Economic Evidently elucidates the economic Provides a solution for the economic concerns,
problems concerns and issues based on the value.
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