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Difference and relation between microeconomics and macroeconomics by Md Noor Rayhan
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Difference and relation between microeconomics and macroeconomics |
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Ezine Publishing,E-Commerce,Education
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Derived from the Greek word “Oikonomia,” economics divide into two major sub fields; macroeconomics and microeconomics .According to Adam Smith (1776) economics is a science, which deals with the cause of wealth. Being impatient and ineligible parts of economics, both macro and microeconomics have its own aspects and fields. Though both are interrelated, they also differ from each other. MICROECONOMICS Adam Smith considered the founder of microeconomics. It is concerned with the behavior of individual entities –consumers, firms, workers, investors and the markets comprising these entities. Individual price settings, price determination of land and labor capital, different aspects of market mechanism are the main issues in general discussion of microeconomics. It is much about limits. Limited incomes, limited budget, limited technological knowledge, limited time for allocation between labor and leisure. In addition, this is a solution to those limitations. More precisely, it shows a path to make the best use of our limited resources to produce the maximum level of output. It explains the choice between two options such as between labor and leisure or to one job to another or between hiring workers and new machinery. Microeconomics deal with supply and demand, consumer behavior , utility and profit maximization, individual market equilibrium ,analysis of competitive markets, pricing with market powers, monopoly, monophony , Oligopoly, game theory , markets for factors input, asymmetric information, external abilities and other market drawbacks. Microeconomics is necessary to understand market failure while not providing effectual results and the circumstances behind it. Microeconomics also offers marginal analysis, which has derived some efficient micro principles and laws. Microeconomics is also concerned with economic welfare. Distinguishing between substitution and income effect, utilization of budget constraint achieves indifference curves and effects of tax on income and consumptions are the other objectives of microeconomics. MACROECONOMICS On the other hand, macroeconomics is concerned with the overall approach of an economy. Unlike microeconomics, it deals with the aggregate of individual quantities national income, total volume of savings and consumption, price level and national output. Though now it has become an important part of economics, before 1936 it did not even exist in its modern form until the revolutionary book of John Maynard Keynes got published named ‘General Theory of employment, Interest and Money. At that time, great depression of 1930s was still going on and the United States and England were stuck into it. Over one-quarter of the American labor, forces were unemployed. In his new theory, Keynes developed an analysis on business cycle and unemployment and high inflation rate. Instead of studying the individuals, macroeconomics is the study of broad economic issues, which affect our daily lives enormously. Economic fluctuations, unemployment, gross domestic product (GDP), gross national product (GNP), external debt are important factors of the issues. Macroeconomic achieves aggregate demand by identifying commodities by users while in microeconomics characteristics are considered. Determination of the national output, inflation, unemployment and their interrelations are the main goals of economics. Their impact can explain using macroeconomic variables such as central bank policies, discount rate, open market operations, and wage adjustment theory. It also discusses on the economy in the short run and long run, macroeconomic policy debates, classical theory, growth theory, business cycle theory etc. Unemployment and inflation can correct according to macroeconomic theory. An increase in aggregate demand will reduce unemployment and thus increases the inflation rate. This relation explains in Philips curve and it shows clear tradeoff between these two macroeconomic variables. This problem can solve by imposing monetary policy and fiscal policy. Fiscal policy is the increase or decrease in government expenditure and monetary policy is increase or decrease in money supply made by the central bank. Government increase expenditure reduces taxes so that people with disposable income may increase. If people’s income increases, this will stimulate economic growth creating more jobs and standard of living. Besides, price stabilization, fair accumulation of total resources, promoting higher employment level, a fair level of consumption is also the objectives of macroeconomics. WHICH IS BETTER: MICROECONOMICS VERSUS MACROECONOMICS Both microeconomics and macroeconomics are important for our country Bangladesh as well as all other nations. None of their impact on a society can deny. In fact, they can complement each other but cannot substitute for each other. Micro-economic research is important for analyzing economic problems and macroeconomics deals with the solution concerned with it. While personal income, output, consumption leaves on the branch of microeconomics, macroeconomics is concerned with the level of output for the whole economy, the average wage of all the labors throughout the economy of a nation. It believes that if the overall economy is healthier than most of its individuals will be better off and vice versa. However, this does not mean those individuals’ income, price level, output, and employment in short micro-economic analysis can ignore; In fact, the two major branches of economics are highly correlated. Macroeconomics uses the microeconomics principles; the difference is only in the aggregation rate. Both explain the aspects and the type of transaction in the markets. The difference is that microeconomics deals with the transactions of individual consumers or producer and in macroeconomics they are the entire economy .Microeconomics allocate resources efficiently and macroeconomics focuses on the extent of resource utilization. Principally, both microeconomics and macroeconomics are the same; both are suitable to demand- supply analysis. Microeconomics focuses on the demand for or supply of an individual product whereas macroeconomics deals with the demand for or supply of output of the whole economy. Therefore, whether it is the United States of America or Kenya, the impact and efficiency of both microeconomics and macroeconomics analysis cannot deny in the true sense of the term.
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microeconomics, macroeconomics, Adam Smith,
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