Micro- vs. Macroeconomics

What Is the Difference Between Microeconomics and Macroeconomics?

Microeconomics focuses on single factors and the effects of individual decisions. Conversely, the definition of macroeconomics is the part of economics concerned with large-scale or general economic factors, such as interest rates and national productivity. 

Sounds confusing right? Don’t worry we’ll help break it down for you!

Breaking It Down

Microeconomics is essentially zooming in on the micro level, and it includes studying the choices individuals, households, and businesses make and what impact they have on the economy.

Macroeconomics looks at the whole picture. It studies the economy based on entire countries, industries, and global systems.

Key Examples

In Microeconomics you will study:

• Scarcity: the study of the choices people make when they can’t have everything due to finite or limited resources.
• Supply and Demand: the study of what buyers are willing to pay and what sellers are willing to produce.
• Opportunity Cost: the study of what someone may give up for something else in return.
• Incentives: the study of how incentives shape people’s behaviors.

In Macroeconomics you will study:

• GDP (Gross Domestic Product): the total value of everything a country produces to measure economic growth.
• Unemployment: the study of why unemployment rises or falls and what it means for the economy’s health.
• Inflation: the study of rises in prices and how they affect wages, savings, and spendings.
• Business Cycle: the study of the natural ups and downs of the economy to help predict and manage economic changes.

Wrapping Up: Key Applications of Micro vs. Macroeconomics

Microeconomics is often the starting point for studying economics. Most Econ 101 classes focus on microeconomics because it contains the basic foundation for economic theory, including: diminishing returns, economies of scale, variable costs, monopoly, oligopoly, and various forms of competition (perfect, monopolistic, etc.). As can be seen by the terms in the previous sentence, microeconomics allows us to analyze firms, which is a crucial skillset in business management and economic analysis.

Macroeconomics, on the other hand, are important because they drive markets. By studying macroeconomics, we gain insights on inflation, GDP, interest rates, unemployment, and asset prices. These are all determined by the state of the economy as a whole, some of them on the national scale, and some on the global scale.