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Distinction Between Microeconomics and Macroeconomics

Microeconomics and macroeconomics differ in several key ways: Microeconomics studies individual and small group economic decisions, while macroeconomics analyzes aggregate outcomes for an entire economy. Microeconomics focuses on particular markets, prices, and industries, whereas macroeconomics examines national indicators like GDP, employment, and inflation. Microeconomics assumes government does not interfere in markets and uses partial equilibrium analysis, while macroeconomics recognizes government's role and employs general equilibrium analysis to study interdependencies between economic variables.

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64 views2 pages

Distinction Between Microeconomics and Macroeconomics

Microeconomics and macroeconomics differ in several key ways: Microeconomics studies individual and small group economic decisions, while macroeconomics analyzes aggregate outcomes for an entire economy. Microeconomics focuses on particular markets, prices, and industries, whereas macroeconomics examines national indicators like GDP, employment, and inflation. Microeconomics assumes government does not interfere in markets and uses partial equilibrium analysis, while macroeconomics recognizes government's role and employs general equilibrium analysis to study interdependencies between economic variables.

Uploaded by

kehindeadeniyi
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Distinction between Microeconomics and Macroeconomics

Microeconomics may be distinguished from macroeconomics on the basis of definition,


objectives, their bases, government interference, methods of analysis, their assumptions and time
dimension.

1) Definition: Microeconomics is the study of economic actions of individuals and small


groups of individuals. It includes particular household, particular firms, particular
industries, particular commodities and particular prices. On the other hand,
macroeconomics is not the study of individuals but the study of aggregate behaviour of
the economy as a whole. This involves national income, employment, and general price
level e. t. c.
2) Objectives: the objective of microeconomics on the demand side is to maximize utility
whereas on the supply side is to maximize profits at the minimum cost. On the other
hand, the main objectives of macroeconomics are full employment, price stability,
economic growth and favourable balance of payments.
3) Basis: the basis of microeconomics is the price mechanism which operates with the help
of demand and supply forces. These forces help to determine the equilibrium price in the
market. On the other hand, the bases of macroeconomics are the national income, output,
employment and general price level which are determined by aggregate demand and
supply.
4) Government interference: In microeconomic analysis, government interference in
economic activities is totally ignored and downplayed. It is the invincible hands of
demand and supply that regulate economic activities. Meanwhile, in macroeconomic
analysis, government plays major role and represent the heartbeat of the process.
5) Methods of analysis: Microeconomics adopts majorly the partial equilibrium analysis
which helps to explain the equilibrium condition of an individual, a firm, an industry and
a factor. On the other hand, macroeconomics is based on the general equilibrium analysis
which is an extensive study of a number of economic variables, their interrelations and
interdependences for understanding of the economic system as a whole.
6) Assumptions: microeconomics is based on assumptions with the rational behaviour of
individuals. As such, the phrase “ceteris paribus” is used to explain the various laws. On
the other hand, the assumptions of macroeconomics are based on such variables as the
aggregate volume of the output of an economy, with the extent to which its resources are
employed, with the size of the national income and with the general price level.
7) Time dimension: In microeconomics, the studies of equilibrium conditions are analyzed
at a particular point in time. It does not explain the time element. Hence, microeconomics
is considered as a static analysis. On the other hand, macroeconomics is based on time-
lags, rates of change, and past and expected values of the variables. Thus,
macroeconomics is concerned with dynamic analysis.
8) Method of reasoning: Macroeconomic theories are based upon deductive method of
reasoning while microeconomic theories are formulated according to inductive method of
reasoning.

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