Essay about The Difference between Microeconomics and Macroeconomics

Submitted By tchapell27
Words: 1272
Pages: 6

When you hear the words Micro and Macro the first thing that comes to mind is small and big. Microeconomics is the study of the law of supply and demand at the consumer level.
This is the decision by individual households on allocation of limited resources. Macroeconomic decisions are focused on the country and governmental decisions. Macroeconomics is the study of the economy as a whole. While microeconomics deals with households and the consumer level, macroeconomics deals with complete industries. Microeconomics deals with the lower level of the economy, and always focuses on a personal level even when it involves other companies . Microeconomic decisions are motivated by cost and benefits. Microeconomics looks at the behavior of individual people and companies within the economy. It is based on the idea of a market economy, in which consumer demand is the driving force behind the prices and production levels of goods and services. Microeconomics is interested in how specific parties choose to use the limited resources that are available to them. It focuses on what drives them to make their decisions, as well as the ways in which their decisions affect the supply and demand of particular goods and services. These choices influence the price levels of various commodities. In summary, microeconomics concerns itself with the human beings whose purchasing and production-related decisions come together to form the backbone of a given economy. To an extent, both macro and microeconomics look at supply and demand, as well as price levels. However, each field views these factors from a different standpoint. To better grasp the meaning of macroeconomics; it might be helpful to think of it as a "top-down approach" toward understanding the economy. Macroeconomics paints a picture of the economic conditions in a particular country as a whole; however, knowledge of macroeconomic principles can be used to develop an understanding of conditions for the individual players in the economy.
Likewise, microeconomics looks at the economy from the bottom up, but the information it gathers about individual households and businesses is helpful in gaining an understanding of general economic conditions. The difference of micro and macroeconomics may seem well- defined on the surface, but these two categories of study can overlap in significant ways. In fact, no student of the economy can truly comprehend the meaning of macroeconomics without comprehending the meaning of microeconomics as well.

There are four economic principles of individual decision making the

first one is people make tradeoffs. In which economic goods are services are

limited, while the need to use services of these goods and services seem

limitless. Societies had to decide how to use the limited resources and

distribute them among different people. Making a decision requires trading

off one goal against another. Another trade off society faces is between

efficiency and equity. Efficiency deals with a society's ability to get the most

effective use o its resources in satisfying people's wants and needs. Equity

denotes the fair distribution of benefits of those resources among society's

members. The second principle is when people choose one thing they give

up something else. The scarcity of economic resources forces people to make

tradeoffs. That is, people must always consider how to spend their own

limited incomes or time because resources are limited to satisfy their

unlimited needs and wants. When we give up an item, we lose the benefits of

its services to us or incur costs to obtain the benefits of the thing we decide

to choose. In economics, the term used to reflect whatever must be given up

to obtain some item is called opportunity cost. The third principle is that

rational people think at the margin. In many situations,