Microeconomics is the field of economics that looks at the economic behaviours of individuals, households and companies. Macroeconomics takes a wider view and looks at the economies on a much larger scale – regional, national, continental or even global. Microeconomics and macroeconomics are both vast areas of study in their own rights.
Because microeconomics focuses on the behavior of small units of the economy, it tends to limit itself to specific and specialized areas of study. This includes the balance of supply and demand in individual markets, the behavior of individual consumers (which is referred to as consumer theory), workforce demand and how individual companies determine wages for their workforces.
Macroeconomics has a much broader reach than microeconomics. Prominent areas of research in the field of macroeconomics concern the implications of fiscal policy, locating the reasons for inflation or unemployment, the implications of government borrowing and economic growth on a nationwide scale. Macroeconomists also examine globalization and global trading patterns and perform comparative studies between different countries in areas such as living standards and economic growth.
While the main difference between the two fields concerns the scale of the subjects under analysis, there are further differences. Macroeconomics developed as a discipline in its own right in the 1930s when it became apparent that classic economic theory (derived from microeconomics) was not always directly applicable to nationwide economic behavior. Classic economic theory assumes that economies always return to a state of equilibrium. In essence, this means that if demand for a product increases, the prices for that product get higher and individual companies rise to meet the demand. However, during the Great Depression, there was low output and wide-scale unemployment. Clearly, this did not indicate equilibrium on a macroeconomic scale.
In response to this, John Maynard Keynes published "The General Theory of Employment, Interest and Money," which identified the potential and reasons for a negative output gap over a prolonged period of time on a macroeconomic scale. Keynes' work, along with that of other economists, such as Irving Fisher, played a large role in establishing macroeconomics as a separate field of study.
While there are differential lines between microeconomics and macroeconomics, they are interdependent to a large extent. A prime example of this interdependency is inflation. Inflation and its implications for the cost of living are a common focus of investigation in the study of macroeconomics. However, since inflation raises the prices of services and commodities, it can also have acute implications for individual households and companies. Companies may be compelled to raise prices to respond to the increasing amounts that they have to pay for materials and the inflated wages they have to pay their to their employees.