While many of us try to keep pace with the most salient trends of our world, the difference between macro and micro economics may still be a bit obscure. Knowing the difference and how they play out in the real world can save us time and energy when it comes to what news sources or research we choose to investigate. However, it is important to understand that while they address different forms of economic activity, the terms are related. In the article below, we’ll explore how they differ and where they intersect.
The World Is Both a Small and Large Place
Macroeconomics is the study of larger markets and forces that govern them. It also touches upon trends and themes such as fiscal policy fluctuations, underpinnings for inflation or other factors like unemployment, overall growth, and socioeconomic divides. This aspect of economics tends to deal with large trends and prime movers in the global economy—countries and multi-national corporations.
If one were to attend a class focused on macroeconomics, the topics studied would be broad and generalized—such as supply and demand dynamics, the impacts of globalization on international trade, or government borrowing and the lending institutions most often involved.
Daily Life as an Economic Practice
Microeconomics, on the other hand, is concerned with describing the spending habits of smaller subsets within a culture or nation. It focuses on individuals markets, segments of the population, consumer behavior, and the theory of firms. Some of the areas of study in a class on the subject might be: how the concept of supply and demand impacts specific markets; consumer behavior; the ripple effect of the production-consumption dynamic in a specific place or within a group; and how the demand for a product or service interacts with the larger economic landscape.
Microeconomics is often concerned with theory first, and tends to work from abstract ideas to concrete data. For example, the theory of supply and demand indicates that an increased demand for a good or service will lead to a rise in the price of the commodity as well as a responsive rise in quantity of the item produced or made available. The field maintains that the basic, theoretical principals all move towards equilibrium—a state of satisfaction of demand and acceptable pricing of goods and services.
While the study of individual markets or specific segments of a population can be illuminating, macroeconomics tends to examine empirical data drawn from larger arenas and work backwards to create or tailor existing theory. It examines trends and notes that large or combined markets may remain in a state of disequilibrium far longer than local markets or finite considerations. Perhaps the most crucial understanding one can have is that both types of economics are connected. Consider a commodity that is constantly in demand in many markets. Gasoline is one of the best examples. If there is a rise in price per barrel of oil, a concomitant rise in the price of gasoline is expected in every market. How that rise impacts individual markets would be a function of microeconomics, while the responsive rise itself—or cost-push—could be seen as one of macroeconomics.
While the two fields are deeply bound to one another, they also examine different aspects of the economic sphere. Microeconomics is a bit like the weather—highly responsive to the slightest change and local or regional in focus. Macroeconomics resembles climate—a change is likely to produce a slow, but progressively developing trend that will impact markets on a broader scale. This, in a nutshell, is the difference between macro and micro economics.