Microeconomic and macroeconomics

Microeconomicand macroeconomics

Macroeconomicsis a field of study that focuses on the national or regional economyas a whole and the factors affecting it. It is a general field ofeconomics that looks at the large scale indicators in the economysuch as rates of unemployment, rate of inflation, output, totalinvestment, international finance and national income among others.Macroeconomics is also concerned with the development of economicmodels and theories that explain the complex relationship betweenlarge scale economic indicators. Compared to microeconomics,macroeconomic field of study is relatively new and emerged as aviable and independent field of study in the first half of the 20thcentury. Macroeconomic studies were evoked by economic developmentand challenges that took place in the western economies, especiallythe United States economy. In the late 1920s, the American economyexperienced a massive economic growth due to the advent ofspecialization of labor and large scale production. However, in the1930s, the economy was hit by one of the worst economic challenge inhistory, the great depression. Before then, economists were mainlyconcerned with the activities of individual entities in the economyrather that the behavior of the national or regional economy. Theneed to establish the causes of the great depression and measuresthat can be taken to avoid future occurrences initiated macroeconomicstudies. John Maynard Keynes, an English economic scholar is one ofthe most famous pioneers in macroeconomics. Together with othereconomists, Keynes sought to explain the causes and impacts of thegreat depression (Wickens, 2011).

Formany years, macroeconomic studies were dominated by what are referredto as Keynes’ theories of macroeconomics. The aggregated demand isthe main focus of the Keynes’ theories. Keynes used the economicconcept of aggregated demand to explain different concepts inmacroeconomics. For example, he used the concept to explain theunemployment in the economy. However, in the late 20thcentury, he Keynesian economists incorporated classical economists’concepts in their models which led to advancement of macroeconomicmodels. Thus although the modern macroeconomic models cannot beconsidered to be Keynesian, economists maintain that Keynesian modelsforms the foundation of macroeconomics. However, it is important tonote that the working of a national, regional and global economy ismultifaceted and complex. Therefore, it would by a hyperbole to arguethat there is an economic model or school of thought that canaccurately explain how the economy works. Macroeconomics provides aworking approach to economic issues observable in the moderneconomies. One of the most important impacts of the advent ofmacroeconomics has been the tendency towards the use of governmentpolicies to influence economic activities and economic changes. Thesegovernment policies have been aimed at shielding the economy frompossible economic shocks and recessions. Good examples of governmentpolicies influenced by macroeconomics are monetary and fiscalpolicies. Some of the government policies have far reaching economicand noneconomic impacts (Wickens, 2011).

Onthe other hand, microeconomics is a field of economic studies thatlooks at the behaviors of individuals in the economy and the processof decisions making in response to scarce resources. From a generalpoint of view, microeconomic is the study of “supply and demand forgoods and services”. According to microeconomics models, thebehaviors of individual in the market are critical in the economy. In this regard, individuals include persons, households or businessentities. The study of microeconomics have several specialized fieldsof study, most importantly applied the labor market economics andprice theory. Additionally, there are several microeconomics theoriesthat have been developed to explain varies aspects of the economy.However, all these theories collapse into the demand and supplymechanism. For example, although there are several types of market,tentatively all markets can be considered to be competitive marketswhere demand and supply controls the prices of the commodities.Despite these, there are some instances where individuals orcorporate entities can influence the demand and supply mechanism inprice determination (Varian, 2011).

Themost important purpose of microeconomic is the analysis of the marketand the market forces and how relative prices of commodities areestablished. It is also concerned with the allocation of limitedresources, the concept of opportunity cost, among numerousalternative. Another important concern in microeconomics is the studyof market failure. This is the study of why markets fail to behavelike ideal markets in the price determination through supply anddemand mechanism. Some of the basic fields of microeconomics includesupply and demand forces, theory of consumer choices, productioncosts, market structures, firm behavior and the role of governmentpolicies in the commodity market (Besanko et al, 2011).

Despitethe difference, there are some obvious relationships betweenmacroeconomics and microeconomics. The most important relationship isthat microeconomics forms the foundation of macroeconomics.Additionally, aggregate production and consumption in an economy isinfluenced by individual choices made my persons, households orbusiness entities. This makes explicit connection betweenmacroeconomics and microeconomics. Therefore, the individual choicesand behaviors in the economy studies in microeconomics have anoverall influence of the trends in the national economy. For example,the study of investment policies at the microeconomics level isincomplete without the study of the trends in macroeconomics such aseconomic growth and labor market trends. On the other hand, in thestudy of a national economy output at macroeconomics level, thedemand and supply trends are essential. Therefore, microeconomics andmacroeconomic s examine the same issues from different perspectives(Marshall, 2013).


Besanko,D., Braeutigam, R. &amp Gibbs, M. (2011). Microeconomics,Hoboken, NJ: John Wiley.

Marshall,A. (2013). Principlesof economics, NewYork, NY: Palgrave Macmillan.

Varian,H. (2010). Intermediatemicroeconomics: a modern approach,New York: W.W. Norton &amp Co.

Wickens,M. (2011). Macroeconomictheory: a dynamic general equilibrium approach,Princeton: Princeton University Press.