The Greek prefix “makro-” means “large”, so the macroeconomic is the branch of economics that studies the behavior of all units combined. This includes the structure, decision-making and performance of a national, regional and global economy. Microeconomics studies the following fields: the theory of income, output and employment, based on effective demand of productivity or output, the theory of prices, theory of economic growth and the macro theory of distribution.
Microeconomics explain the relationship between factors like inflation, savings, investment, international finance and trade. The most important research areas are based on the attempt to comprehend the short-run fluctuations and the long-run economic growth. The models researchers create explain the causes and outcomes of different factors so that governments and large corporations can develop strategies. Macroeconomics is essential for an efficient implementation of government policies.
In the macroeconomics vs microeconomics dispute there is no winner, because they are interdependent fields. Microeconomics focuses in the economical behavior of an individual or a particular firm within a specific system or market. It studies the decision-making process of people and organizations relevant for the proper allocation of resources. The following fields are covered by microeconomics: theory of factor pricing, theory of economic welfare and the theory of product pricing, split into of the theory of consumer behavior and the theory of production and costs.
Microeconomics analyzes the allocation of resources for production and the factors that influence it, like the prices of goods. It helps to understand how the economy of a private enterprise works and how it can function without any central control.
- Macroeconomics vs Microeconomics
When thinking about macroeconomics vs microeconomics, advantages and disadvantages surface on both sides. Microeconomics studies the individual perspective, therefore the results cannot be reliably extrapolated to macroeconomic models. The investment policies of a business cannot be investigated without a proper understanding of the macroeconomic growth. The only difference between them is that one looks at the economy as a whole while the other studies small segments.
A macro-economist cannot understand the economy of a nation without knowing the individual behavior. The two studies are interdependent and complementary. If the prices of raw materials increase, the price of the final product charged to the consumer also increases. While the microeconomics has a bottoms-up approach, the macroeconomics approaches from the top down. The two fields are bound together and cannot be separated. They both provide fundamental information about the economy, how it is managed and how companies operate.