Microeconomics focuses on individuals, companies or groups. Macroeconomics, on the other hand, studies the national economy as a whole.
Microeconomics looks at the decisions of individual consumers/producers or particular markets within the economy. Micro concerns the actions, incentives and affects of individuals’ choices.
Micro covers topics such as:
- Demand and supply in individual markets. For instance, the demand for automobiles in the UK.
- Consumer choice theory. For example, a consumer choosing how to spend her income across a bundle of goods and services.
- Individual labour markets. For instance, how a decrease in the minimum wage will affect the supply of construction workers.
- Externalities and welfare. For example, the private and external benefits of education and healthcare.
Micro is concerned with questions such as:
- What happens to demand for Coca Cola if the price of Pepsi rises?
- Should the government stop people smoking in public?
- Are there too many firms in the market?
Macroeconomics looks at the aggregate economy. Aggregate means added up, total or whole. Macro therefore focuses on all of the economy’s markets added together, the whole economy, and studies aggregate level variables such as aggregate demand (AD), inflation, unemployment, gross domestic product (GDP), economic growth and international trade.
Macro focuses on issues such as:
- Economic growth. The causes and affects of increasing economic growth.
- Monetary and fiscal policy. How a fall in the interest rate impacts the level of investment in the economy.
- Inflation. How the aggregate price level changes when unemployment rises.
- International trade and globalisation. The impact of UK tariffs on the exports of the USA.
Macro seeks to address questions such as:
- What are the benefits if the UK economy grows faster?
- What are the effects of a rise in the average price level?
- How does a strong dollar affect the UK?
- Should the government spend more money to boost the economy?