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; so here is a brief summary of what each covers. Microeconomics is generally the study of individuals and business decisions, while macroeconomics looks at higher up country and government decisions.
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 that 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, on the other hand, is the field of economics that studies the behavior of the economy as a whole, not just of specific companies, but entire industries and economies. It looks at economy-wide phenomena, such as Gross Domestic 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 the unemployment rate. (To keep reading on this subject, see Macroeconomic Analysis.)
John Maynard Keynes is often credited with founding macroeconomics, when he initiated the use of monetary aggregates to study broad phenomena. Some economists reject his theory and many of those who use it disagree on how to interpret it.
Microeconomics Vs. Macroeconomics
Micro and Macro
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.
Microeconomics takes what is referred to as a bottoms-up approach to analyzing the economy while macroeconomics takes a top-down approach. In other words, microeconomics tries to understand human choices and resource allocation, while 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.
What Should Individual Investors Look At?
Individual investors are probably better off focusing on microeconomics than macroeconomics. There may be some disagreement between fundamental (particularly value) investors and technical investors about the proper role of economic analysis, but it is more likely that microeconomics will affect an individual investment proposal.
Warren Buffett has famously stated that macroeconomic forecasts don't influence his investing decisions. When asked about how he and Charlie Munger, his business partner, choose investments, Buffett responded, "Charlie and I don't pay attention to macro forecasts. We've worked together for 50+ years, and I can't think of a time when they influenced a decision about stock or a company." Buffett has also referred to macroeconomic literature as "the funny papers."
John Templeton, another famously successful value investor who died in 2008 at the age of 95, shared a similar sentiment. "I never ask if the market is going to go up or down, because I don't know. It doesn't matter. I search nation after nation for stocks, asking: 'where is the one that is lowest priced in relation to what I believe it's worth?'" said Templeton.
The Divide Between Microeconomics and Macroeconomics
Microeconomics concerns itself with the small details that make a difference when evaluating individual companies. This includes production costs and market prices for goods and services. A lot of microeconomic information can be gleaned from the financial statements.
Macroeconomics focuses on aggregates and econometric correlations. Investors of mutual funds or interest rate-sensitive securities should keep an eye toward monetary and fiscal policy. Outside of a few meaningful and measurable impacts, macroeconomics doesn't offer much for specific investments.
Moreover, economists generally agree on the principles of microeconomics. As the International Monetary Fund (IMF) website states, "There are no competing schools of thought in microeconomics." This is not true with macroeconomics. Macroeconomic forecasting has a very poor track record, and the accepted version of macroeconomics has changed several times since its inception.
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?