The difference between microeconomics and macroeconomics is best understood by economists. However, it is still possible to simplify the concepts for everyone to understand.
Microeconomics and macroeconomics are joined at the hip. Policies and principles in one affect the other. They can best be described as waves that go back and forth. Once governments and policymakers implement a decision at a macro level, it will affect the micro-level. The ripple effect with a return to affect the macro level again.
Let us understand the definition of macroeconomics and microeconomics. The best approach will be to review the unique principles of each of the two branches of economics. While at it, you must understand that the two are interdependent.
Microeconomics
Microeconomics refers to the decisions made by businesses at a local level. This includes boardrooms and shop counters. It is one of the defining differences between macro and microeconomic because, as we will learn later, Macroeconomics involves decisions made by governments and international organizations.
Businesses make decisions on resource allocation, purchases, employee wages, and business location, among others. Individuals on their part decide where to live, how to spend their money, and what to save, among other daily decisions. These decisions depend on macro issues like taxation, government policies, and legislation.
Another way to understand micro vs macro economics is to look at the persons or entities affected by these decisions. Microeconomic decisions only affect a household. Other households like friends and neighbors are not tied to the decisions or their consequences. For instance, if a family decides to stay in a 3-bedroom house, the decision will only affect the household. This is different from a tax imposed by a government that will affect everyone doing business in the industry.
The easiest trick on how to learn microeconomics is to consider a bottom-up approach. Here, you will be studying the actions of people at the end of the production chain. It is about human choices, decisions, and resource allocation. Microeconomics tries to understand how individual decisions change based on varying conditions at the micro-level.
An example of a microeconomics discussion is how a company can utilize its resources to be more competitive. Such a discussion will be informed by the financial statement of the company in question. It has nothing to do with government policies or decisions made at the top.
Some of the principles that anchor microeconomics include:
- The demand and supply equilibrium
- Production theory
- Labor economics
- Cost of production
- Management decisions
Micro economics is dependent on theorems and compatible rules. This is a different approach from macroeconomics that depends on empirical studies.
Macroeconomics
To settle the debate on what is micro and macro economics, we must look at macroeconomics in depth. Macroeconomics studies how policies made at the top in a country affect entire industries down to the final consumer. The analysis focuses on entire industries instead of individual buyers.
For instance, you can study how GDP expansion affects unemployment or how taxation is affecting the ability of a business to maintain reasonable liquidity. You may also study how export policies affect liquidity and foreign exchange reserves. All the principles focus on actions at a macro level and the effect on an entire sector.
To understand how to learn macroeconomics, you must look at econometrics correlations and aggregates. The two terms refer to the philosophy that informs government decisions when making fiscal and monetary policies. These policies are important to investors who operate in an internationally-sensitive environment like securities. A single decision can wipe out your fortune or turn you into an overnight billionaire.
Because of its focus, macroeconomics does not help specific investors much. Instead, it helps them to calculate profit margins and operation costs. They cannot control such policies because they are made for the entire industry.
The conclusion would be to look at which is easier micro or macro economics. The jury is still out on this dilemma. Economics is about passion. Your area of interest will determine whether you study macroeconomics or microeconomics. It will also depend on your target career path. Macroeconomic graduates are likely to work at the international level or handle national and international dockets in organizations. On the other hand, microeconomic graduates will be dealing with mass or household issues. Both areas are interesting to study because they help you to understand how the world works.
