Exploring Micro vs. Macroeconomics: What's the Difference?

By Indeed Editorial Team

Published March 29, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

The concepts of microeconomics and macroeconomics help professionals understand important information regarding local and global financial events. Several differences and similarities exist between these theories relating to their approach and scope. Understanding microeconomics and macroeconomics can help you determine which concept suits your research needs. In this article, we explore micro vs. macroeconomics, identify the key differences between the two concepts, outline the main principles supporting both ideas, and answer some frequently asked questions.

Micro vs. macroeconomics

A comparison of micro vs. macroeconomics involves an understanding of these fundamental social science concepts. Here's an explanation of the two terms:

Microeconomics

Microeconomics is a research theory that emphasizes the financial decisions that households, businesses, and individuals make. It helps establish how different individuals budget their resources and select job positions. Microeconomics can also predict how a business determines the prices for its services and products. Financial analysts commonly study microeconomics to establish a cause-and-effect connection between a financial event or situation and the revenue it raises. For example, you can use microeconomics to assess how a company's production plan influences its pricing policy.

Macroeconomics

Macroeconomics is a research theory that focuses on large-scale financial events, including how different countries' financial policies influence the global economy. It evaluates how governments organize spending processes, develop tax protocols, and provide services to their residents. If you study macroeconomics, you may observe how income circulates between countries or employment rates differ between nations. Macroeconomists typically work to enhance global financial processes and improve populations' living standards. Macroeconomics uses a top-down approach to assess the economy as a whole by analyzing entire economies and industries instead of specific companies or individuals.

Related: 17 Jobs in Economics (With Salary and Job Expectations)

Important differences between micro and macroeconomics

Here are some examples of the differences between the two concepts:

  • Businesses versus governments: Microeconomics emphasizes the activities and behaviours of individual companies. In contrast, macroeconomics monitors the state of the global economy and how each country manages its finances.

  • Market components versus a larger economy: Microeconomics typically examines a business's presence in a market to make financial decisions and designate resources. In contrast, macroeconomics evaluates a larger economy and its various factors to realize similar targets for different nations.

  • Consumer conduct versus overarching factors: Microeconomics can evaluate how an individual or group of consumers determines the demand for a specific commodity. Conversely, macroeconomics emphasizes how different economic and social factors influence supply and demand for services and products in the global economy.

  • Price versus income: Microeconomics addresses issues by assessing income and price changes in a local economy. Macroeconomics typically emphasizes national income and its contributing factors.

  • Equilibrium versus imbalance: Microeconomics examines how individuals balance economies with actions, such as increasing the price of goods when demand is higher. Instead, macroeconomics analyzes the external and fundamental factors that contribute to higher inflation rates and unbalanced supply and demand.

Related: How to Calculate Annual Gross Income (With Examples)

Key principles of microeconomics

The following are some of the key principles of microeconomics:

Supply and demand

Prices typically increase proportionally when fewer supplies of a highly desirable product exist. Microeconomists can study this phenomenon and assess the different ways in which people handle it to ensure equilibrium. In this context, equilibrium refers to a situation where there are sufficient supplies to satisfy customer pricing preferences.

Manufacturing cost

Manufacturing cost is a theory that proposes a causal connection between production expenses and resources. Microeconomists typically study this causal relationship to determine further financial details. For example, assembly costs may increase if the cost of a commodity necessary for production rises.

Production methods

Microeconomists also research business production strategies. This includes how a business chooses the products it sells and how it improves its resources. Production strategies also demonstrate the relationship between a product's production cost, selling price, and entry into the market.

Labour economics

Labour economics highlights the actions of employees in the overall market. This concept also emphasizes the contribution of labour to certain production processes. Researchers can leverage labour economics to determine how businesses develop labour contracts and calculate employee salaries.

Financial satisfaction

The field of microeconomics recognizes that people make financial decisions to gain personal satisfaction. Microeconomists can measure this phenomenon by designating values to products depending on whether they fulfill customer requirements. Researchers can also assess the outcome of financial satisfaction by investigating how it influences an individual's psychological wellbeing.

Related: What Is Customer Satisfaction and Why Is It Important?

Opportunity cost

Opportunity cost refers to the economic benefit or loss experienced when selecting one activity over an alternative. There's typically an opportunity cost when an individual or business chooses a product or service. Individuals and businesses can efficiently leverage scarce resources if they consider opportunity costs frequently.

Elasticity

Elasticity typically refers to the variation in consumer demand, resulting from a change in price, substitute availability, or income level. The demand is inelastic if any of these factors change and consumer demand remains constant. Inelastic goods are typically essential goods for which a price increase doesn't affect demand.

Key principles of macroeconomics

The following are some of the key principles of macroeconomics:

  • National income: Macroeconomists analyze the wealth a country generates to predict its overall stability. They typically monitor the overall annual value of a nation's services and products through several measurement methods to determine the correct information.

  • Inflation rates: Inflation describes how the cost of products and services increases over time. Researchers typically observe global economy inflation rates to ensure they remain steady and low.

  • International trading: This concept evaluates the trading policies used by countries, including how they trade materials, services, and equipment. Researchers examine these policies to assess their overall effectiveness and how they influence national economies.

  • Employment rates: Macroeconomists analyze several factors that contribute to variations in employment rates in a country or the overall global economy. Applying macroeconomics can help leaders develop methods to preserve a steady employment rate or enhance it over time.

  • Economic growth: Macroeconomics also considers the complete value of a country's services and products and the amount of revenue it can raise. This principle assumes that increased employment rates and lower tax breaks may result from an increased production output.

  • Investments: Macro investing enables financial experts to determine where a nation invests in its economy and how certain industries compare with others. Economists can leverage investments to predict those economic sectors that attract financial resources to measure the value of specific goods and services.

Related: How to Calculate Inflation Rate (With Examples)

Frequently asked questions about micro and macroeconomics

Here are answers to some frequently asked questions related to micro and macroeconomics:

Why is microeconomics important?

Microeconomics is important as it provides insight into how people and institutions influence financial progress in different communities. Microeconomics can also help businesses to improve their production efficiency and develop policies that directly influence employee or customer livelihoods. This is because microeconomics focuses on the relationships between individuals. It also allows people to see themselves as direct participants in their local economy. For example, a company can use microeconomics to resolve a disparity between a product's value and how much it pays its employees.

Why is macroeconomics important?

Macroeconomics is important because it enables researchers to understand why the global economy acts in a certain way. Researchers can also leverage macroeconomics to understand why particular services and products vary in value among different governmental policies. These insights help researchers address various societal issues, such as employment and housing, on a more significant scale. It also helps them to develop methods for improving and maintaining the gross domestic product (GDP), which refers to the total value of all products and services a country produces in a year.

Are there any similarities between microeconomics and macroeconomics?

Micro and macroeconomics analyze similar financial scenarios, including the changing rates of economic progress and resource allocation. Economic analysts commonly use microeconomic principles to offer a context for significant financial investigations, as both concepts are usually complementary. For example, a researcher may assess different countries' GDP from a macroeconomic view by leveraging the microeconomic principle of supply and demand to understand how individual businesses contribute to GDP growth.

Financial analysts also examine how financial phenomena on a macroeconomic scale influence businesses and individuals functioning on a microeconomic scale. For example, a company may generate higher income during an accounting period if inflation rates in its country decrease. As a result, the company may hire more employees than they initially budgeted for. The opposite can also be true, as local scenarios may shape governmental decisions and affect industry standards.

Explore more articles