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How Macroeconomics differs from Microeconomics?

How Macroeconomics differs from Microeconomics? - Success Roar Classes

What is Microeconomics?

The term “Micro” is derived from the Greek term “Mikros” which means small. (How Macroeconomics differs from Microeconomics?)

  • Here, ‘small‘ means an individual economic unit.

Microeconomics is defined as that branch of economics that studies economic issues or economic problems at the level of an individual like a consumer or a producer.

  • The following aspects are studied in this branch-
    • Economic issues like demand and supply theory, price determination, etc.
    • How do rational customer and producer allocate their limited resources for maximum satisfaction and maximum profit respectively?

What is Macroeconomics?

The term “Macro” is derived from the Greek term “Makros” which means Large.

  • Here, ‘large‘ means economy as a whole.

Macroeconomics is defined as that branch of economics which studies economic issues or economic problems at the level of an economy as a whole.

  • The following aspects are studied in this branch-
    • Such economic issues that concern the welfare of all residents of a country. Like the growth of GDP, Inflation, employment, etc.
    • Role of government in improving the state of the economy of a country.

How Microeconomics is different from Macroeconomics?

Basis of DifferenceMicroeconomicsMacroeconomics
  Basis of StudyStudies problem of scarcity and choice at the level of an individual, a household, a firm, or an industry. E.g.: Consumer choosing those goods which give him maximum satisfaction with his limited income.Studies problem of scarcity and choice at the level of an economy as a whole. E.g.: Government using the national resources for ensuring maximum social welfare.
Economic VariablesConsumer’s Demand and Producer’s SupplyAggregate Demand (demand for all the goods and services in the economy) and Aggregate Supply (supply of all the goods and services in the economy).
Economic Agents (individuals and institutions who take economic decisions)Individual include consumers and producers. They focus on the maximization of personal gains.Various institutions include state or statutory bodies like RBI, SEBI, TRAI. They focus on the maximization of social welfare.
Degree of aggregationLimited degree of aggregation. E.g.: Its studies equilibrium of an industry. Means aggregation of all the firms producing a particular commodity.Has a wide range of aggregation. E.g.: equilibrium of the economy as a whole. Means aggregation of all economic units in the economy.
Different set of assumptionsVariables that are variable here are constant at macro level. Eg.: Total output and employment are taken as Constant.Vice-versa. E.g.: Distribution of output/income is taken as Constant.
Central Issue  Allocation of resources  Determination of the overall level of output and employment
Method of StudyPartial Equilibrium Analysis (Equilibrium in one market)General Equilibrium Analysis (Simultaneous Equilibrium in all Markets)
Micro-Macro Paradox  What is logical at the micro level may not be logical at macro. Ex. Saving by an individual leads to his future prosperity.Vice-versa. Ex. Saving by the economy leads to less investment. As a result, level of output and employment will decline further resulting to future poverty.

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