Macroeconomics vs. microeconomics - Essay Example

Macroeconomics uses the general equilibrium theory to study the economy as a whole. The aggregates used by macroeconomics for the study include national income as well as output, the rate of unemployment and inflation level. It also uses some sub aggregates like spending on consumptions and investments and their components. Macroeconomics also examines the effect of fiscal and monetary policy. It can be characterized as modeling of sectors on the basis of some micro components. The factors that have the potential to affect the long term growth prospects as well as can affect the level of national income is not outside the purview of macroeconomic analysis.

The factors that have such kind of potential include changes in technology, capital accumulation and growth of the labor force (Cencini, 2005, p. 2). The models of macroeconomics and the forecasted results determined using those models is in need for the government as well as for the large ownerships as this kind of analysis will help them in their path of development and build new strategies of business. Some of the famous macroeconomic models include Aggregate demand and the aggregate supply model and the ISLM model.

The once divided fields of monetary policy and the business cycles led to the emergence of macroeconomics. The contribution of J.M. Keynes to macroeconomics cannot be ignored. His book “General Theory of Employment, Interest and Money” depicts the key concepts of macroeconomics. He offered a modern theory of economics which dealt with the problem on why the market is not clear and eventually a school of economists evolved who seemed to follow the Keynesian theory (Andolfatto, 2005, p. 2).

Microeconomics It deals with the behavior of the basic elements within the economy. The agents involved in microeconomics include households and firms. It mainly tries to analyze the behavior of the firms and households with the market (Barro, 1997, p. 3). Microeconomics can be defined as the study of economics that analyses the actions of the individual players and structure of the markets where they operate. Microeconomics takes care of the private, domestic as well as the public players. The study relating to the interaction of these players in the market is called microeconomics.

The various structures of market that is examined in microeconomics include perfect competition, monopoly, and monopolistic competition. Production is defined under microeconomics as inputs into outputs. Production can thus be defined as the flow of output over a period of time. The most directly observable attributes under microeconomics are price and quantity. The coordination or the relationship of price with quantity demanded is explained using the law of demand (Dilts, 2004). The law of demand is applied in microeconomics to determine the price and output in a market structure of perfect competition where no sellers or the buyers have the capability to determine or control the market price.

Microeconomic analysis is applied by the business firms as they involve themselves in quantitative research and statistical methods with the aim to make strategic decisions. One of the objectives of microeconomics is to analyze the mechanisms of market. It sets up the relative prices amongst the services and the goods and also allocates the limited resources among the many available alternative uses. Some of the significant fields of study under this branch of economics include asymmetric information, general