Distinction Microeconomics Macroeconomics

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Distinction Microeconomics Macroeconomics

Subject-matter of Study

Macroeconomics is concerned with the study of economic aggregates such as total employment, total consumption, total investment and national product.

In contrast, microeconomics is concerned mainly with small segments of the total economy-individual consumer and producer, groups of consumers and producers which are know as markets or industries. In microeconomics, a study is made of the various parts that constitute the economy.

Thus, while the macroeconomic analysis presents the macroscopic view of the economy, the microeconomic analysis furnishes us with the microscopic view of the economy.

Macroeconomics deals with economic affairs “in the large”. It concerns with the overall dimensions of economic life. It looks at the total size and shape and functioning of the “elephant” of economic experience rather than the working or articulation or dimensions of the individual parts. To alter the metaphor, it studies the character of the forest, independently of the trees which compose it.

Use of Techniques

Microeconomics uses the technique of partial equilibrium analysis to study the price of particular commodity or service in any given market on the assumption of caters paribus.

Macroeconomics, on the other hand, uses the technique of quasi-general equilibrium analysis to study determination of the aggregate prices and output levels and fluctuation in these aggregate magnitudes.

Assumptions in the Analysis

The microeconomic analysis, while studying an individual element of the economy assumes the prevalence of full employment in the economy as a whole. This is a highly unrealistic assumption. What exists in an economy normally is not ful employment but under-employment. As Keynes pointed out, “to assume full employment is to assume our difficulties away.

Core Difference

Price is the most important determinant for the problems related to microeconomics whereas income is the major determinant of macroeconomic problems, while the decision of households, firms and factors of production in microeconomics are based upon price, in macroeconomics, the decision related to aggregate demand, aggregate output, aggregate saving and investment, etc, are based upon income.

Nature of Changes

In microeconomics the changes take place in individual units, while the nature of the aggregates remains unaltered. Fore example, the size of a family may increase while of another it may decrease. As a result, the total population in a township or country as a whole may remain unchanged. A particular activity may change from microeconomic point of view, whereas it may remain unchanged from macro point of view.

Different Results

If an individual withdraws his entire savings from a bank, it will not have any effect on the banking industry. However, if all the account holders on a particular day withdraws their deposits from the banks, the banking business may collapse.

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