Information sheet, class-8 Economics

Chapter 5: Microeconomics and Macroeconomics

5.1 The difference between microeconomics and macroeconomics

Economics is divided into microeconomics and macroeconomics. As their names suggest,

microeconomics is concerned with the small scale and macroeconomics with the large scale.

Microeconomics: Microeconomics is the study of the behavior and decisions of households and
firms and the performance of individual markets.

Microeconomic topics include changes in the earnings in a particular occupation and changes in
the output in the car industry.

Market: An arrangement which brings buyers into contact with sellers.

Macroeconomics: Macroeconomics is the study of the whole economy. Macroeconomic topics

include changes in the number of people employed in the economy and changes in the country’s
output.

The connection between microeconomics and macroeconomics:

Many of the concepts used in microeconomics are also used in macroeconomics, but on a
different scale. For example, you will later examine the demand for an individual product, and
the total demand for all foods and services in an economy. You can also look at why the price of
a particular product may change and why the price level in an economy may change.

Microeconomic decisions and interactions add up to the macroeconomic picture. This means that
changes in the micro economy affect changes in the macro economy and vice versa. For
example, a reduction in the total output of the car industry may result in a rise in the country’s
unemployment rate. Similarly, a decision by the government to cut income tax rates may result
in household buying more cars.
The output of cars influences a country’s total output

5.2 Decision makers in microeconomics and macroeconomics

The decision makers in microeconomics and macroeconomics are sometimes referred to a

economic agents. They are households, firms and government. Households are buyers also
known as consumers, savers and workers. Firms are business concerns that produce goods and
services and employ workers and other factors of production. Government is the system which
rules a country or region. A government produces and provides some products, provides
financial benefits and regulates the private sector.

The aims of decision makers:

Households as consumers, seek low prices and good quality products. As workers, they want
good working conditions and high pay. As savers they want their money to be safe and to give a
good return. Firms in the private sector usually try to make as much as profit possible. A
government wants a strong economy. It may have objectives for the macro economy, including
full employment of labour. It may also seek to improve the performance of individual markets
by, for example, taxing the sale of cigarettes.