What is Microeconomics and its use? | What is Macroeconomics and its use?
Introduction
Economics at its core, is the study of human behavior regarding
its economic or monetary decisions taken with the aim of utilizing their scarce
resources to fulfil their needs and wants in the best possible manner.
Now why this aspect of human behavior holds so much
importance?
We all know the resources at the end with the individuals
(which also includes firms and business units over and above people) can be
used to fulfil their needs and wants, but the scenario is not as simple as it
looks. There is an imbalance in the above statement which leads to the whole
idea and concept of economics that we are studying. The imbalance is – the needs
and wants of individuals are unlimited but the resources to satisfy them are
limited. There come the whole idea and concept of economics which tries to
dwell into the human behavior regarding the decision making, that is how the
individuals will take decision when they face dilemma regarding to make choices
and prioritizing the needs and wants.
Now the field of economics studies these things in two
parts; one at micro level which we famously call it as Microeconomics and other
at macro level which we call it as Macroeconomics. These are two branches of
economics which tries to study the above phenomenon at two different levels.
Microeconomics
Microeconomics is the branch of economics which studies the behavior
of individuals which includes different economic decision makers that is
people, firms and business units. Microeconomics studies how individuals
allocate the scarce resources and prioritize their needs and wants to be fulfilled
from limited resources. They study how the firms and business units employ
their limited resources to achieve optimal production to achieve economies of
scale in order to compete in the market and provide the goods and services at
equilibrium price.
Microeconomics dwells in detail regarding the demand and supply of goods and services and how their confluence decides an equilibrium price of a particular good or service. It studies the origin of price signals which results in the adjustments of demand and supply of the goods. Individuals in the economy demand a particular good or service which has a particular level of supply. If the supply of the goods is lower than its demand, the price of the good will increase. This increase in the price of good is the price signal that the market sends to the producers which takes this signal as an indication to increase the supply of that good. If the demand is lower from the individuals in the market for a particular good, the price of that good will fall. This fall in price is a price signal from the market to the producer of that goods which takes this fall in price as an indication to reduce the supply. As soon as the producer of any of the goods or service adjust the supply of the goods and services as per the price signals sent by the market, the demand and supply comes in tandem which results into achievement of equilibrium price of that particular good or service. All of these phenomenon taking place is covered under the umbrella of Microeconomics. Microeconomics studies everything above as to how these price signals are generated and how the producers of goods and services will respond which we know as consumer behavior and firm behavior.
Macroeconomics
Macroeconomics is the branch of economics which studies the
economy at an aggregate level that is macro level measuring the total output of
the economy, the total employment in the economy, the price rise or level of
inflation in the economy and the total production and consumption levels in the
economy.
Macroeconomics concerns itself at whole country level as to
how an economy is performing in terms of its utilization of scarce resources
and allocation of the resources which includes the capital expenditure
conducted at country or economy wide level as well as the level of employment in
the economy. It also studies the change in the aggregate total output as well
as change in the aggregate price levels that is inflation in the economy.
As macroeconomics focusses on the production or total output
at aggregate level, it studies thoroughly the components which make up the
aggregate output which includes the consumer expenditure, government expenditure,
investments as well as net exports. Consumer expenditure is the expenditure by
the whole country that is sum of all individual expenditure at an aggregate level.
Government expenditure includes the expenditure undertaken by the government at
national level which includes revenue as well as capital expenditure.
Investments is measured as the total private capital expenditure that has taken
place in an economy. Net exports is total exports of an economy minus its
imports. Macroeconomics studies all of the above with analyzing how the
aggregate output is being constituted and then Macroeconomics also discusses
the fiscal and monetary policies which are formed and implemented in order to increase
the aggregate output as well as achieve maximum utilization of scarce resources
and while undertaking that to see to it that the aggregate price level is in control.
Fiscal policy would focus on increasing the aggregate output by increasing the
utilization of available scarce resources and monetary policy would see to it
that while achieving the former goals by fiscal policy, the price levels at the
economy level remains in control. That monetary policy does by managing
interest rates at the economy level. So macroeconomics studies everything at an
aggregate or economy wide level or to say at country level.
Conclusion
To conclude, as we know that it all starts with individuals
who dwell into economic decision making regarding the utilization of scarce
resources to fulfill their needs and wants by purchasing the goods and
services. And all individuals collectively form the economy or society at an
aggregate level. So it becomes very important to study both the behavior of
individual units at micro or individual level as well to study it at an
aggregate level which includes all the individuals collectively at societal or
economy wide level. Thus the field of economics divided the study of the above
into two branches which are Microeconomics and Macroeconomics. Microeconomics
for individual level and Macroeconomics for aggregate level.
Social Plugin