Microeconomics and Macroeconomics: Meaning, Scope, Difference and Interdependence

You have $30 and you’d like to get a regular shirt, pants, and a pair of shoes to attend a free show that’s normally $10. At the same time, there is a special brand of shoes that you’re interested in. The regular shirt, pants, and pair of shoes cost $10 each, whereas the special brand shoes cost $30 a pair. The market is a place where buying and selling activities occur, namely bringing them together to obtain a sale and purchase agreement. The market is then not only defined as a physical form, but can take a broader form, such as a marketplace or online buying and selling activities using the internet. Price theory also discusses the balance that occurs between sellers and buyers, where both will carry out a bargaining process until an agreement is reached at a certain price.

So when the price is determined it is influenced by economic conditions, demand and supply curves, and also costs that can continue to change. Microeconomics is the study of what is likely to happen (tendencies) when individuals make choices in response to changes in incentives, prices, resources, and/or methods of production. In microeconomic theory, it also discusses how the flow of product turnover, both goods and services, can be formed in the market. This theory will then analyze the goods produced, producers, consumers, and distribution in terms that allow or rational in making the right economic decisions. Microeconomics is concerned with analyzing economic conditions and maximizing
social welfare. It studies how given resources are utilized to gain maximum benefit
under various market conditions like monopoly, oligopoly, etc.

Difference Between Macroeconomics and Microeconomics

Classical economists always insisted on micro economics because they believed that it is better to understand concept at individual level and then go for general (or macro) level. E.g. first understanding individual consumer behaviour and then analyzing the behaviour of entire market. Land, labour, capital and entrepreneur, all factors contribute in production process.

• There are certain conditions that become basis of predictions.
• At the same time, there is a special brand of shoes that you’re interested in.
• A firm can get maximum profit when marginal revenue is more than marginal cost.
• Prices of individual commodities are determined by market forces of demand and supply.
• Hence, Micro economic analysis explains us the optimum use of our income and by virtue of it enables us to avoid the wastage of hard-earned income.
• Macro economics is the study of the aggregate covering the whole
  economy.

With the advent of globalisation and cross-border integration, economic concepts are applied in order to conduct successful business dealings between countries. Economic concepts can be used in areas, such as foreign trade (exports and imports), foreign exchange (trading currency), the balance of payments, and balance of trade. John Maynard Keynes is often referred to as the father of macroeconomics in India. Micro economics divides the economy into various small units and every unit is analysed in detail. It assumed that all macro economics variable are constant. Macro economics deal with the problem of unemployment , trade cycles,
international trade, economics growth etc.

Scope and Importance of Economics

When there is demand when the price of goods or services is higher, the quantity demanded for goods or services will decrease. Conversely, if the price of goods or services decreases, the higher the buyer’s demand for goods or services. In urban development, the scope of economics covers the analysis of different urban issues such as crime, education, public transit, housing, and local government finance. Economics involves allocating resources to meet peoples’ needs and desires for goods and services. Explore the definition and types of economics including microeconomics and macroeconomics and learn about growth vs. sustainability.

By explaining things to others, they can trust economists more and follow their suggestions. For example, why would we spend our money on roads instead of dirt bikes just scope of micro economics because you told us to? Internal costs are sacrifices that companies or individuals use to get more benefits from the various economic activities they carry out.

Business Studies

So, the definition of microeconomics is to have the main goal for companies, namely to analyze the market and how the mechanism in forming the relative prices of products or services. Microeconomics is also called price theory as it studies the pricing of goods and services and the factors of production. The basic elements of microeconomics are goods and services, prices, markets, and economic agents like consumers, firms, and government. The factor market is examined because of supply of factors and derived demand from product market. In fact, microeconomics deals with individual consumer and a firm or industry. Therefore, it is concerned with behaviour of individual consumers and producers and principles relating to organisation and operations of firms and industries.

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This phenomenon is known as “Law of Variable Proportions” in micro economic theory. Therefore, quantity of production of goods is decided by different firms individually. Every firm tries to get equilibrium or maximize its profit. For this purpose, a firm tries to find optimum combination of factors. Each student of Economics is well aware of with the four factors of production like land, labor, capital and entrepreneur. It is that branch of economics theory which deals with the behavior of individual economic units in the economy such as individual households, individual firms, industries, etc.

The natural inequality of income distribution in a free enterprise economy leads to exploitation of consumers. Microeconomics is concerned with study of parts but not the whole. In terms of individual terms, it is impossible to describe large and complex universe of facts like economic system. Microeconomics is based on the idea of free market economy. In fact, there Is no free market economy after great depression of 1930. It also helps entrepreneurs to achieve optimum production point with their budget constraint.