How does the study of microeconomics differ from that of macroeconomics - Essay Example

July 27, How does the study of microeconomics differ from that of macroeconomics? Give one example each of an issue studiedin microeconomics and in macroeconomics. Economics, as the name indicates, is the study of the economy. More formally, it can be described as the social science of how people, organizations and nations use scarce resources available to them. The underlying basis is scarcity, because that involves choice; and this selection is the subject matter studied under economics. Economics can broadly be categorized into two branches; Microeconomics and Macroeconomics.

Microeconomics deals with the functioning of individual units within an economy. These are primarily individual households and firms. Issues under study in microeconomics include, but are not limited to, demand & supply, output of individual businesses, prices of goods and services etc. On the other hand, Macroeconomics deals with issues of the aggregates, i.e. economies, such as national income, inflation, output etc. A government, hence, becomes an important operator within the focus of macroeconomics since it sets policies which regulate the matters of the economy as a whole.

Although macro and microeconomics tend to study different aspects, as highlighted above; but they are deeply interrelated. Macro governs microeconomics since the individuals under study under the latter make up the economy. Similarly, policies that are a part of the former, affect behavior of individuals which are a part of the economy. The interdependence can be explained with an example. Demand and supply of goods and services are affected by individuals and organizations that are a part of the economy.

Any change in supply or demand for a good or a service is likely to influence the behavior of consumers; i.e. an increase in supply will decrease prices and hence promote more purchase and vice versa. This fluctuation in demand/supply will be an issue of microeconomics. Such a behavior when studied for all the individuals and organizations and for all types of goods and services being sold in a country will become a subject matter for macroeconomics. The table below shows some examples of the various issues that fall under macroeconomics and microeconomics respectively: Source: The Scope and Method of Economics, Principles of Economics, Case, Fair & Oster Works Cited Case, K. E., Fair, R.C., Oster, S.M., Principles of Economics, 9th ed.

India: Prentice Hall/Pearson Education, 2009. Print