A:

Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and government decisions.

Macroeconomics and microeconomics, and their wide array of underlying concepts, have been the subject of a great deal of writings. The field of study is vast; here is a brief summary of what each covers:

Microeconomics

Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize its production and capacity so it could lower prices and better compete in its industry. (Find out more about microeconomics in How does government policy impact microeconomics?

Microeconomics' rules flow from a set of compatible laws and theorems, rather than beginning with empirical study.

Macroeconomics

Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross National Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by unemployment rate. (To keep reading on this subject, see Macroeconomic Analysis.)

John Maynard Keynes is often credited with founding macroeconomics. He started the use of monetary aggregates to study broad phenomena; some economists reject his theory and many of those who use it disagree about how to interpret it.

While these two studies of economics appear to be different, they are actually interdependent and complement one another since there are many overlapping issues between the two fields. For example, increased inflation (macro effect) would cause the price of raw materials to increase for companies and in turn affect the end product's price charged to the public.

The bottom line is that microeconomics takes a bottoms-up approach to analyzing the economy while macroeconomics takes a top-down approach. Microeconomics tries to understand human choices and resource allocation, and macroeconomics tries to answer such questions as "What should the rate of inflation be?" or "What stimulates economic growth?"

Regardless, both micro- and macroeconomics provide fundamental tools for any finance professional and should be studied together in order to fully understand how companies operate and earn revenues and thus, how an entire economy is managed and sustained.

If you are interested in learning more about economics, take a look at What is "marginalism" in microeconomics and why is it important? and What kinds of topics does microeconomics cover?

RELATED FAQS

  1. Should investors care more about microeconomics or macroeconomics?

    Learn why investors such as Warren Buffett focus on microeconomics, not macroeconomics, when evaluating individual investment ...
  2. What is GDP and why is it so important to investors?

    The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents ...
  3. What is the concept of utility in microeconomics?

    Read about the concept of utility in microeconomics, and why economists disagree about the usefulness of cardinal utility ...
  4. How does government policy impact microeconomics?

    Read about how any type of government policy necessarily impacts the microeconomic decisions that are made by individuals ...
RELATED TERMS
  1. Whartonite

    A graduate of the Wharton School of Business at the University ...
  2. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
  3. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...
  4. Factor Market

    A marketplace for the services of a factor of production.
  5. Deflationary Spiral

    A deflationary spiral is when a period of decreasing prices (deflation) ...
  6. Negative Interest Rate Policy (NIRP)

    A negative interest rate policy (NIRP) is an unconventional monetary ...

You May Also Like

Related Articles
  1. Economics

    Should investors care more about microeconomics ...

  2. Economics

    What is GDP and why is it so important ...

  3. Economics

    What is the concept of utility in microeconomics?

  4. Economics

    How does government policy impact microeconomics?

  5. Fundamental Analysis

    What math skills do I need to study ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!