Microeconomics Versus Macroeconomics

By Jodi Beggs, About.com Guide

According to comedian P.J. O’Rourke, “microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things economists are wrong about generally. Or to be more technical, microeconomics is about money you don’t have, and macroeconomics is about money the government is out of.” This is probably closer to the truth than economists would like, but let’s examine the distinction in more detail.

Microeconomics

Those who have studied Latin know that the prefix “micro-“ means “small,” so it shouldn’t be surprising that microeconomics is the study of small economic units. The field of microeconomics is concerned with things like:

• Consumer decision making and utility maximization
• Firm production and profit maximization
• Individual market equilibrium
• Effects of government regulation on individual markets
• Externalities and other market side effects

Macroeconomics

Macroeconomics can be thought of as the “big picture” version of economics. Rather than analyzing individual markets, macroeconomics focuses on aggregate production and consumption in an economy. Some topics that macroeconomists study are:

• The effects of general taxes such as income and sales taxes on output and prices
• The causes of economic upswings and downturns
• The effects of monetary and fiscal policy on economic health
• How interest rates are determined
• Why some economies grow faster than others

The Relationship Between Microeconomics and Macroeconomics

There is an obvious relationship between microeconomics and macroeconomics in that aggregate production and consumption levels are the result of choices made by individual households and firms, and some macroeconomic models explicitly make this connection.

Most of the economic topics covered on television and in newspapers are of the macroeconomic variety, but it’s important to remember that economics is about more than just trying to figure out when the economy is going to improve and what the Fed is doing with interest rates.

What Is Economics?

By Jodi Beggs, About.com Guide


Simply, and perhaps surprisingly put, economics is the study of scarcity. Resources are limited, and every society wants to figure out how to allocate its resources for maximum benefit. The field of economics serves in large part to help answer this resource allocation question. Economists study questions such as:

• How prices and quantities of items are determined
• How much value markets create for society
• How taxes and regulation affect economic value
• Why some goods and services are under-supplied in a market economy
• How firms compete and maximize profit
• How households decide what to consume, how much to save, and how much to work
• Why some economies grow faster than others
• What effect monetary and fiscal policy has on economic well-being
• How interest rates are determined

In order to fully understand what economics is, it’s important to also understand a bit about what economics isn’t. For example, economics and finance are related but separate fields, and it’s not an economist’s job to tell people what stocks and bonds they should be investing in.

It is, on the other hand, an economist’s job to understand the relationship between interest rates and bond prices. In a similar fashion, many of the topics discussed in The Economist deal with politics and current events and are not specifically economic-related, despite the title of the publication.

Understanding what economists do and don’t study is important, since sometimes economists are called on to answer questions that they are not technically qualified to analyze, and this can have unsatisfactory results.

http://economics.about.com/od/economics-basics/a/What-Is-Economics.htm