Explain the difference between macroeconomics and microeconomics. How are these two fields related - Essay Example

In contrast, Macroeconomics is concerned with the national economy as a whole and provides a basic understanding of how things work in the economy. Microeconomics can be defined as the branch of economics in which we study about individual aspects like a firm or household. It is concerned with individuals making their choice about what is to be produced, how and for whom it is to be produced, and what price should be charged for it. Micro economics deals with the economic action and behavior of individual units and small groups of an economy (Sloman and Garratt, 2010).

It covers the following fields of the study: Price Theory Theory of Consumer Behavior Theory of Behavior of Firms Theory of Production Microeconomics has many theoretical as well as practical advantages. Few of them are: It helps in understanding the working of a free market economy It provides us a way for efficient employment of resources It covers some of the problems of taxation. It guides Business Executives in attaining maximum productivity Macro economics deals with the behavior or working of the whole economic system.

It is the study of aggregates or averages covering the entire economy. In contrast to microeconomics, macroeconomics is concerned with the conduct, arrangement decision-making performance of the entire economy. Macroeconomists studies the relationship between the following: National income National Output Total Savings Total Investment Total Consumption Total Unemployment International trade International finance By definition, Macroeconomics is very wide in its scope and study as it deals with the problems of unemployment, economic fluctuations, inflation, and deflation.

It is concerned with the effects of investment on total output, total income, and aggregate employment. The monetary discipline of the macroeconomics examines and analyzes the effect of the total quantity of money on the general price level. In the international trade sphere, it deals with the problems of balance of payments and foreign aid. The field of macroeconomics provides us fundamental theories which can help us in preventing depressions and recessions by allowing governments to formulate adjustments through changes within the macroeconomic policies (McConnel and Brue, 1997).

These policies are in general the monetary policy and fiscal policy of the state. The major differences that exist between micro and macro-economics are discussed briefly as follows (Mbaknol, 2011): S. No. Micro-economics Macro-economics 1. Aggregation Level Economy’s individual units are studied, like a particular product, a particular firm, etc. Problems of the economy are studied as a whole. The aggregates are studied, like national income, aggregate savings, etc. 2. Objectives Principles, problems and policies that are related to the best distribution of resources are studied in it.

In it the principles, policies and problems relating to the full employment of the resources and the development of those resources are covered. 3. Focus Price determination, Equilibrium of Consumer, Welfare and allocation of resources is dealt. National income, full employment, trade cycles, general price-level, economic growth, etc are dealt here. 4. Assumptions Ways for allocation of production and factors of production