MICROECONOMICS VS. MACROECONOMICS
The study of economics is usually broken into two basic concepts which are microeconomics and macroeconomics. Microeconomics is centered on parts of the economy that relates to individual people and businesses. It focuses on the decisions that individuals and businesses make in relation to the dynamic nature of the economy. For example, a business may decide to alter the price of a product or the wages of its workers based on the conditions in the economy. This is referred to as the idea of supply and demand, meaning that businesses change aspects of their operation to meet the levels of supply and demand for their product or service in the larger economy. The study of these individual and smaller decisions are called microeconomics by economists.
In contrast, macroeconomics focuses on the larger aspects of the economy that are usually carried out by governments. For example, macroeconomics usually centers on large issues that impact entire industries or economies and not just individual businesses. The boom and bust cycle and larger issues such as employment and taxation are considered to be areas of macroeconomics. Modern macroeconomic theory is considered to have emerged from the ideas of the famous economist John Maynard Keynes. Keynes’ ideas had a profound impact on the 20th century and specifically the Great Depression, when American President Franklin D. Roosevelt developed his New Deal based on the macroeconomic ideas of Keynes.
While microeconomics and macroeconomics have many differences it is important to understand that there are also several key ways in which the two are connected. More specifically, there is a great deal of overlap between the concepts of microeconomics and macroeconomics. For example, a business owner may decide the adjust the price of a product (which is a microeconomic decision) due to an increase in taxation brought about by the government (which is a macroeconomic decision). As well, the overall condition of an economy of a country or industry is based upon the many smaller decisions made by individuals and businesses within that economy. Therefore, microeconomics and macroeconomics are constantly impacting each other and causing changes in both.