Question

What is the difference between microeconomics and macroeconomics? Provide an example of each.

Answer 1

Microeconomics deals with the study of economic behavior of individuals, firms , households in relation to a specific market.

For example in the study of microeconomics we are interested to know the consumers demand for a specific product or we are interested to know what price a firm will charge for its product and the output it wants to produce. All such decisions are micro economic decision because we are only studying individual or firms economic behavior in relation to the market.

Macroeconomics is the study of the entire economy and it uses economic aggregates also known as macroeconomic variables to analyse and understand the economy. Macroeconomics encompasses all the elements of an economy and does not restrict itself to any particular segment.

For example GDP is a common macroeconomic variable used to analyse the economy. GDP is the dollar value of all final goods and services produced in an economy. Such estimates helps in understanding how well the economy is performing and corrective measures if anything to be taken to bring the economy on track. Inflation rate is another macroeconomic estimate that helps to understand the general price levels prevalent in an economy.