Difference between Macroeconomics and Microeconomics

This article will help you to learn about the difference between macroeconomics and microeconomics.

Difference between Macroeconomics and Microeconomics

It should be noted that microeconomics also deals with some “aggregates” but not of the type with which macroeconomics is concerned.

Microeconomics examines the behaviour of the industry in regard to the determination of its product price, output and employment, and the industry is an aggregate of the various firms producing the same or similar product.

“Macroeconomics also uses aggregates smaller than for the whole economy but only in a context which makes them sub-divisions of an economy wide total. Microeconomics also uses aggregates, but not in a context which relates them to an economy- wide total.” -Professor Ackley.

Likewise, microeconomic theory seeks to explain the determination of price of a product through the interaction of the market demand for and market supply of a product. Market demand for a product is the aggregate of the individual demands of all consumers wishing to buy the product and the market supply of a product is the aggregate of the productions of many firms producing that product. Similarly, demand for and supply of labour in an industry of a city through which microeconomics explains wage determinations are aggregative concepts.

But the aggregates with which macroeconomics deals with are of somewhat different variety. Macroeconomics concerns itself with those aggregates which relate to the whole economy.Macroeconomics also discusses the sub-aggregates, unlike the aggregates of microeconomics which examines aggregates relating to a particular product, a particular industry or a particular market.

But macroeconomics is concerned with those aggregates that cut across various products and industries. For example, the total production of consumer goods (i.e., total consumption) and the total production of capital goods (i.e., total investment) are two important sub-aggregates dealt with in macroeconomics but these aggregates are not confined to a single product or a single industry but instead they refer to all industries producing consumer goods and all industries producing capital goods. Moreover, the sub-aggregates, discussed in macroeconomics, add up to an aggregate for the whole economy.

For instance, total consumption and total investment, two important sub-aggregates in macroeconomics, together constitute the total national product. Likewise, the total wage income (i.e., total share of labour) and total profits (defined as total property income) add up to the national income.

As we said above, the subject-matter of microeconomics consists in explaining the determination of relative prices of products and factors and the allocation of resources based upon them. On the other hand, the subject-matter of macroeconomic analysis is to explain what determines the level of national income and employment, and what causes fluctuations in the level of national income, output and employment.

Further, it also explains the growth of national income over a long period of time. In other words, macroeconomics examines the determination of the level, fluctuations (cycles) and trends (growth) in the overall economic activity (i.e., national income, output and employment).