Micro and macroeconomics. What are they? What's the difference? And what are their uses? Together, economics is the study of how scarce or finite resources are allocated for production, distribution and consumption, both individually and collectively.
However, economics is traditionally split into two different but interconnected areas, microeconomics and macroeconomics. Microeconomics is concerned with how individuals and businesses allocate resources and set prices for goods and services. The prefix micro indicates a small or individual scale. Microeconomics takes a bottom-up approach.
It looks at how individual decisions affect specific economic relationships and systems. It is used by businesses to set prices and levels of supply. Conversely, macroeconomics looks at the economy as a whole, either at a national, regional or global level. The prefix macro indicating a large or collective scope. Macroeconomics takes a top-down approach.
It looks at how economic systems affect the people living within them. Macroeconomics is used by governments and central banks to explore broader economic trends and track variables like inflation and unemployment. When economics is discussed in the media, it is normally macroeconomic questions being debated. Macroeconomics also tends to be more hotly contested than the more mathematical microeconomics. Micro and macro are normally taught separately.
If you cannot take micro and macro classes side by side, students are advised to start with microeconomics first. Start small before going big. However, the two are interdependent and complement one another. You cannot understand the small without some understanding of the whole, nor the large without addressing the small. In recent years, the links between microeconomic theory and macroeconomics have been subject to intense debate.
The so-called micro-foundations of macroeconomics looks for individual behavioural grounds studied within microeconomics to apply to macroeconomic analysis in the aggregate. A caveat to bear in mind is that microeconomic assumptions about individual behaviour can sometimes be wrong. If this is the case then it would distort the macroeconomic models that depend on the same assumptions.
Although the distinction between micro and macroeconomics can be useful to simplify economics teaching, in practice it is vital to integrate how the two are used in conjunction. Enomics is the career site for economists. We support your journey from finding degree programs and scholarships, right through to getting top senior jobs in academia and industry. Check out our website for the latest opportunities in economics, and be sure to subscribe to our channel for more economics content just like this.