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Differences Between Micro and Macroeconomics

Differences Between Micro and Macroeconomics

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09/22/2012

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Difference between micro and macroeconomics Microeconomics focuses on individual company’s decision making. On the other hand, macroeconomics focuses on the whole economy but not on companies. Factors studied in both micro and macroeconomics overlap, therefore, microeconomics and macroeconomics are corelated. This paper will focus on the major differences between microeconomics and macroeconomics. It also includes the different aspects influencing them and their importance and co-relations. In microeconomics, there are several assumptions that are made especially on the supply demand theory where all markets are considered to be in perfect competition. This implies that all buyers and sellers involved in the market have little or no capability at all to influence the prices of the commodities in the market. The model is flawed because, in real life situations, some buyers or sellers are able to influence the prices of the utilities involved. The models in macroeconomics, however, reflect on all factors that affect the economy. Microeconomics takes into account individual households and how they make their decisions and allocate limited resources e.g. the total costs that a college incurs in starting a new course, the salary that would be offered to the instructor, the facilities and materials that would be required in the classroom to facilitate learning. After determination of these factors the decision of whether to or not to offer the new course will be made by weighing the cost of offering it against the cost incurred. Microeconomics simply takes markets where there is selling and buying of goods or services (Dodge 23). There is an examination of how the decisions made, and the limited resources allocated affect the demand and supply of the goods or services in this market. It is concerned with the interaction between select buyers and sellers individually and the factors that influence the decisions, preferences and the choices they make.

Surname3 This field is concerned with issues such as the effect that government regulations play on individual markets, market equilibrium, maximization of profits, firm production, and maximization of utilities, externalities and the other side effects of the market (Ohri 200). These are some of the importance of microeconomics: • Microeconomics enables one to establish methods that can be used to analyze economic forces.

It also gives understanding the consumer market behavior which influences decision making process.

It also gives understanding of the demand supply determinants in the market.

On the other hand, macro economics takes into account the whole economy of the country. It involves broader perspective and figures that include the Gross domestic product and the Gross national product. Macroeconomics focuses on the effects that taxes, such as income and sale taxes impart on the output and prices of commodities, the determination of interest rates, economic growth and the causes of economic growths and failures (Rajan 125). Macroeconomics focuses on the long-run economic growth rate putting into consideration the government policies that are able to affect this long-run growth. The focus is put on many different economic aggregates that cut across a wide range of goods and services, workers and also assets. These factors studied in macroeconomics often affect each other. In microeconomics, demand will be directly influenced by the expectations of individual consumers. In macroeconomics, the demand is influenced by the expectations of the organization (Jain 309). Microeconomics will put into concern the price of individual products while in macroeconomics considers the overall production cost (Jain and Khanna 136). Microeconomics will also consider tax aspects of individuals while macroeconomic considers the country’s tax aspects.

Surname4 In microeconomics price the prime determinant while in macroeconomics the factors are independently interrelated. Microeconomics tries to give understanding to individual units of the economy such as industry. In contrast macroeconomics gives understanding to factors that affect the economy as whole such as savings and the national income (Taylor and Akila 352). Problems involved in price determination and resource allocation are put into much consideration in microeconomics contrary to macroeconomics which focuses on problems of employment, economic growth and income determination (Tewar 75). The theories formulated in microeconomics assume that all other factors remain constant and do not affect the factor in question at all (Jain and Ohri 34). Although micro and macroeconomics seem to be different, they are interdependent and complimentary. This is due to the many overlapping factors between them e.g. in case of inflation, the price of raw materials charged on the producers goes high. This translates to a higher price being charged on the consumer on that commodity. Microeconomics as depicted from the above takes a bottoms-up approach while macroeconomics takes a top-down approach. However, for a better understanding of how companies operate and earn their revenues(thus affecting the economy) both micro and macro economics should be studied and should be taken as fundamental tools to any financial professional.

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Works Cited Dodge, E. 5 Steps to a 5 AP microeconomics/macroeconomics, 2012-2013. New York: McGrawHill, 2011. Ohri, V. AP macroeconomics/microeconomics. New York Edinburgh: Kaplan Compass Academic distributor, 2009. Jain, T. and Mahji B. (Dec 1, 2008Author. Principal of Microeconomics. City: V K Publications, 2008. Jain, T. and Khanna,P. Microeconomics: for Bba. City: V K Publications, 2008. Ohri, V. and Jain, T (Dec 1, 2008) Author. Introductory Macreoeconomics. City: V K Publications, 2008. Taylor, J. and Akila, W. Principles of Microeconomics: Global Financial Crisis Edition. City: South-Western College/West, 2009. Tewar, D. Principles of Microeconomics. City: New Age International (P) Ltd, 2003. Arnold, R. Microeconomics. Cincinnati: South-Western College Pub, 2008. Rajan T. Industrial economics and management principles. City: Laxmi Publications, 2008

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