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Microeconomics and Macroeconomics

[Harvard University]



- Microeconomics 

Microeconomics is a social science that studies the impact of incentives and decisions, particularly how incentives and decisions affect the use and allocation of resources. Microeconomics shows how and why different goods have different values, how individuals and firms can efficiently produce and exchange and benefit from them, and how individuals can best coordinate and cooperate with each other. Generally speaking, microeconomics provides a more complete and detailed understanding than macroeconomics. 

Economics may be known for being a depressing science, but it actually addresses some of the most fundamental problems we face: how to make the best decisions with limited resources. You can use the tools of microeconomics to decide how to best use your income; how to best allocate your time among leisure activities; or how many people to employ in the business you run. Life is full of choices. Microeconomics can help you decide how to make them. 

Microeconomics is a branch of economics that studies the behavior of individuals and firms in determining the allocation of scarce resources and the interactions between those individuals and firms. 

One of the goals of microeconomics is to analyze the market mechanisms that establish relative prices between goods and services and allocate limited resources among alternative uses. Microeconomics shows the conditions under which free markets lead to ideal distribution. It also analyzes market failures, the inability of markets to produce efficient outcomes.


- Macroeconomics

Macroeconomics is a branch of economics that studies how the economy as a whole—markets, businesses, consumers, and governments—behaves. Macroeconomics studies economy-wide phenomena such as inflation, price levels, economic growth rates, national income, gross domestic product (GDP), and changes in unemployment. 

Some of the key questions that macroeconomics addresses include: What causes unemployment? What causes inflation? What creates or stimulates economic growth? Macroeconomics attempts to measure how well an economy is performing, understand the forces driving it, and predict how performance will improve. 

Macroeconomics deals with the performance, structure, and behavior of the economy as a whole, while microeconomics is more concerned with the choices made by individual actors in the economy (such as people, households, industries, etc.). 

Macroeconomics means using interest rates, taxes and government spending to regulate the growth and stability of the economy. It is a branch of economics that deals with the performance, structure, behavior, and decision-making of the entire economy. This includes regional, national and global economies. Topics studied by macroeconomists include GDP, unemployment, national income, price indices, output, consumption, unemployment, inflation, savings, investment, energy, international trade, and international finance.


- Microeconomics vs. Macroeconomics

Global markets instinctively react to events that affect the economy, such as natural disasters, recessions, and pandemics. The rules and principles of two interdependent categories of economics—microeconomics and macroeconomics—govern economies of all sizes. 

Microeconomics focuses on companies and individuals, while macroeconomics focuses on the aggregate of economic activity, dealing with growth, inflation, and unemployment, and national policies related to these issues. Microeconomics also deals with the impact of economic policies (such as changing tax levels) on microeconomic behavior and thus on the economic aspects mentioned above. Especially after Lucas' critique, much of modern macroeconomic theory is based on microfoundations—that is, on basic assumptions about behavior at the microscopic level.


- Macroeconomic and Microeconomic Fundamentals

Macroeconomic fundamentals are topics that affect the entire economy, including statistics on unemployment, supply and demand, growth and inflation, as well as monetary or fiscal policy and international trade considerations. These categories can be applied to the analysis of the economy as a whole or can be related to individual business activities to change based on macroeconomic impacts. Large-scale macroeconomic fundamentals are also part of the top-down analysis of individual companies. 

Microeconomic fundamentals focus on activities within smaller sectors of the economy, such as specific markets or sectors. This small-scale focus can include supply and demand issues within specific market segments, labor, and consumer and business theory. Consumer theory studies how people spend within specific budget constraints. The theory of the company states that businesses exist and make decisions to earn profits.


[More to come ...]



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