Let’s take a look at the difference between
Microeconomics and Macroeconomics.
Economics is divided into two main components:
microeconomics and macroeconomics.
If you look at the prefix for these components,
you may be able to get a better understanding
of what they mean in regards to an economy.
The prefix Micro in Microeconomics means small.
So microeconomics focuses on the smaller components
of an economy like workers, businesses, or
households.
Microeconomics attempts to answer questions
such as the following: What is the effect
on consumer demand if the price of a good
increases?
And, if consumer income increases, what is
the effect on the demand of a specific product?
So Microeconomics is focused on the individual
agents of an economy.
The prefix Macro in Macroeconomics means large.
So macroeconomics focuses on the economy as
a whole.
In macroeconomics we study a vast array of
topics like the spending and level of production
of an economy, the unemployment level, and
an economy’s effect on the rest of the world.
To fully understand macroeconomics, you must
first understand the concept of microeconomics.
Many questions in Macroeconomics deal with
Microeconomic issues.
For example, How is Gross Domestic Product
effected by a decrease in interest rates?
To answer this, we must first see how the
agents of the economy will respond to this
decrease in the interest rate.
Will consumers spend more?
Will firms produce less?
These are microeconomic issues.
When we better understand the actions of the
individual agents of an economy, we can then
better understand the economy as a whole.
