Distinction between Micro and Macro-economics

Origin

The term ‘Micro’ was derived from Greek word “Mikros”. Its meaning is small therefore microeconomics deals with individual units of the economy (individual economic activities).

The term ‘Macro’ was derived from Greek word macros means ‘Large’ or ‘Big’. Therefore macroeconomics deals with aggregate economic activities.

Definition

Microeconomics is defined as that branch of economics which deals with the study of individual economic activities.

Macroeconomics is defined as that branch of economics which deals with the aggregate study of economic activities i.e. study as a whole.

Study

Microeconomics studies microeconomic variables such as consumer and producer’s behaviour, pricing of goods/services, demand for and supply of commodity etc.

Macroeconomics studies economics as a whole. In other words, it studies macroeconomic variables such as national income, aggregate demand and supply, national employment, poverty level etc.

Objectives

The main objective of microeconomics is to maximize utility (satisfaction) from consumer’s side and Profit from producer’s side.

Macroeconomics has objectives of full employment, price stability, economic growth, favourable balance of payment and so on.

Scope

Microeconomics covers the area such as the pricing of products, pricing of factor of productions, theory of economic welfare and so on.

Macroeconomics covers the area such as theories of income and employment, macro theory of distribution, theory of economic growth and so on.

Analysis

Microeconomics studies the equilibrium at a particular point of time. It does not explain the time factor. Hence, microeconomics is regarded as the static analysis.

Macroeconomics studies the equilibrium during a period of time. Hence, macroeconomics is regarded as the dynamic analysis.

Development

Micro economics was mainly developed by classical and neoclassical economists.

Macroeconomics was mainly developed by J. M. Keynes after the great depression of 1930’s.

Equilibrium

Microeconomic analysis is often called ‘partial equilibrium analysis’ because it deals with the determination of the equilibrium price and quantity in each market by forces of demand and supply (demand and supply curves). Hence each market is regarded independent of the other. It means the interrelationship between the various markets is ignored in microeconomic analysis and it shows and analyzes the relationship between micro variables under the assumption of “ceteris Paribus” i.e. other things remaining the same.

Macroeconomic analysis is often called “general equilibrium analysis” because macroeconomics deals with the determination of equilibrium price and quantity in all markets simultaneously. Here, the market of all commodities and all productive factors are interrelated. It shows and analyzes the relationship between micro variables without the assumption of ‘ceteris paribus’.

Theory

Microeconomics mainly concerns with how equilibrium price is determined in different types of market. Therefore microeconomics is also called price theory.

Macroeconomics mainly concerns with the determination of national income and employment level. Therefore, it is also called Income Theory or Policy Science.

Employment Level

Microeconomics assumes full employment and concerns how a consumer and a producer attain equilibrium and how the resources of the economy are allocated.

Macroeconomics worries how full employment can be attained. (Consider underemployment i.e. below full employment.)

Uses

Microeconomics is useful in making production decision for business executives. Microeconomics gives a better tool in understanding the economy as a whole. It can’t solve the present day’s complex problems.

Macroeconomics is useful in formulating appropriate economic policies for the government such as monetary policy, trade policy, population policy etc. It can solve present days complex economic problems such as hyper inflation, unemployment, poverty etc.

Limitations

Microeconomics fails to explain the working of the entire economy.

Macroeconomics fails to explain the working of individual units of the economy.