According to Alfred Marshall, Economics is the study of mankind in the ordinary business of life. But did you know that everything that has to do with the study of economics can be found in two categories, which are “microeconomics and macroeconomics”?

These two categories represent different sides of economics; if you wanted to explain microeconomics in simple words, you’d say that microeconomics, as the micro in the name signifies, has to do with the smaller aspects of the economy; it focuses on the study of how business and individual decisions affect the market, while macroeconomics, as it says in the name, focuses on the government and countries and how their decisions affect the economy.

What Is Microeconomics?

Microeconomics is a subcategory of economics that studies how people and businesses behave when making decisions on how to distribute scarce resources and how these people and businesses interact. Microeconomics can be found in the most basic parts of life.

Microeconomics Overview

Microeconomics first emerged in economics in the 18th and 19th centuries from the work of classical economists such as Adam Smith and David Ricardo. Microeconomics is centred on the analysis of individual marketplaces, sectors, or industries. It also focuses on the decisions people make, the factors that shape those decisions, and how those decisions have an impact on the supply, demand, and price of items on the market.

An Example of Microeconomics

• An individual deciding to purchase one brand of car over another.
  
• A business increasing the price of its products or services.
  
• Demand for products is falling due to price increases.
  
• Companies reduce their supply of products due to an increase in production costs.

These individual and business decisions have an impact on the general market and are all connected.

The Importance of Microeconomics

Below is some importance of microeconomics.

• Microeconomics provides insight into how particular conditions in the market are affected by economic behaviours, individual decisions, household decisions, and business decisions.
  
• It analyzes the implications of individual and business action on the prices of goods, demand, and production, among others.
  
• Microeconomics helps in forecasting trends that might emerge in the market due to individual or business current decisions.
  
•  Investors and market analysts use microeconomics to gain market insights.

What Is Macroeconomics?

Macroeconomics is the study of how a country’s or region’s economy functions. It focuses on understanding economic events, including the total volume of products and services produced, the rate of unemployment, and the behaviour of prices in the economy.

Macroeconomics Overview

Macroeconomics emerged in the 20th century with the works of John Mayard Keynes, who is dubbed the founding father of macroeconomics, and the founder of Keynesian economics. 

While microeconomics focuses on individuals and companies, macroeconomics focuses on the economy. It addresses and investigates the factors that affect and cause inflation, unemployment, economic growth, and national income, among others.

Example of Macroeconomics

The following are examples of macroeconomics.

• A macroeconomist will focus on the percentages of the employment and unemployment rates in the country.
• The inflation rate and purchasing power of a country.
• Government policies like fiscal and monetary policy
• The national income and the growth rate of a country

Macroeconomics School of Thought

The different schools of thought of macroeconomics are explained from different perspectives with different theories. Some of the major schools of thought are:

• Classical Economics: Classical economists believe the markets are flexible and will adjust over time unless there is interference from the government.
  
• Keynesian Economics: Keynesian economists believe that the government should be more active in managing businesses. They advocate for a monetary policy where the central bank revives lending by lowering interest rates.
  
• Monetarism: This is a branch of Keynesian economics that argues that the amount of money in circulation can bring economic stability.
  
• New Classical Economics: New classical economists believe in integrating microeconomic models into macroeconomics. They don’t believe that government interference in the market is effective, but they do believe that individual and business decisions can stabilize the economy.
  
• New Keynesian Economics: New Keynesian economists validate the beliefs of Keynesian economists. They advocate that prices are sticky and sluggish, and they also argue that government market failures happen due to inefficiencies and that government intervention is needed. 

These schools of thought are different and were born in different eras, so their views overlap. But they are all there to provide different perspectives on how the economy currently works and how it can work. These thoughts are also available for economists to use in their analysis of the economy.

Similarities between macroeconomics and microeconomics

Microeconomics and macroeconomics are two different categories in economics; they both share different individual perspectives on how a market and economy can function. But even with that, they might share some similarities. Here are a few similarities between macroeconomics and microeconomics:

• They both rely on statistics to analyze economic behaviours.
  
• They both borrow principles and have effects on each other.
  
• Fading of differentiation. If food costs rise, this has a microeconomic impact on the food consumption market. However, monetary policy will be influenced by the food consumption market, which is so influential that it could also be considered a macroeconomic variable.
  
• They both study the economy and market behaviour but from different standpoints. Microeconomics deals with individuals and businesses and macroeconomics deals with the government. Both focuses have an overall impact on economic growth.

Difference between macroeconomics and microeconomics

Microeconomics and macroeconomics both discuss and study the same things but from different angles. The main differences are:

• Microeconomics studies how individuals and businesses make decisions to allocate scarce resources while macroeconomics studies the economy as a whole.
  
• Microeconomics focuses on individual labour markets, while macroeconomics focuses on the whole labour market, which includes both employment and unemployment.
  
• Microeconomics studies the effects of price changes on goods and services, while macroeconomics studies inflation in the economy.
  
• Empirical data are used more to explain important principles and concepts in macroeconomics. While the foundation of microeconomics is typically theory.
  
• The principles of microeconomics are most widely accepted because of their barely different perspective on the debate over the principles. Macroeconomics, on the other hand, has different schools of thought from different economists; for instance, we have Keynesian, Classical, and others.

Key points 

• Microeconomics focuses on individuals and businesses, while macroeconomics focuses on the economy as a whole.
  
• Microeconomics emerged in the 18^th and 19^th centuries, while macroeconomics emerged in the 20^th century.
  
• Microeconomics theory was widely accepted without too many debates, while macroeconomics is executed through different perspectives from different economists.
  
• Microeconomics focuses on economic concepts like demand, supply, opportunity cost, etc., while macroeconomics focuses on economic concepts like aggregate demand, inflation, GDP, etc.

FAQ

Q. What came first, microeconomics or macroeconomics?

Ans: Microeconomics emerged in the 18th and 19th centuries, while macroeconomics emerged in the 20th century.

Q. Why does microeconomics not have a school of thought like macroeconomics?

Ans: A school of thought emerges when a group of economists have different views on how an economy can operate. Microeconomics is said to be straightforward, which leaves no room for debate.

Q. What are the main goals of macroeconomics?

Ans: Macroeconomists have three main goals they want to achieve: employment, price stability, and economic growth.

Q. Do macroeconomics and microeconomics involve math?

Ans: Microeconomics has some elements of statistics, geometry, and balancing equations. Macroeconomics has elements of calculus. But you would likely encounter the mathematical parts of micro and macroeconomics at higher institutions.

Take a Quiz

1. Microeconomics deals with the following concept except?

1. Demand
2. Opportunity cost
3. Aggregate demand.

2. Which of the following is not a school of thought in macroeconomics?

1. Keynesian Economics
2. New Revolution Economics
3. New Classical Economics

3. People who study how a country performs are called what?

1. Microeconomist
2. Macroeconomist 
3. Econometricians