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Karnataka Class 12 Commerce Economics Differences Between Micro And Macro-Economics Notes

Karnataka Class 12 Commerce Economics Differences Between Micro And Macro-Economics :  Karnataka State Open University is located in Manasagangotri, Mysore. It is recognized as one of the best Open Universities in India imparting Distance Education. The University was established during 1996 and the library started functioning in the same year. It has a glorious record of worthy service with a multi disciplinary resource collection of more than one lakh volumes.

Karnataka Class 12 Commerce Economics Differences Between Micro And Macro-Economics Notes

Karnataka Class 12 Commerce Economics Differences Between Micro And Macro-Economics : Macroeconomics and microeconomics, and their wide array of underlying concepts, have been the subject of a great deal of writings. The field of study is vast here is a brief summary of what each covers:

Microeconomics

Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize its production and capacity so it could lower prices and better compete in its industry.

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Microeconomics’ rules flow from a set of compatible laws and theorems, rather than beginning with empirical study.

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Macroeconomics

Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross Domestic Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation’s capital account or how GDP would be affected by unemployment rate.

Micro and Macro

While these two studies of economics appear to be different, they are actually interdependent and complement one another since there are many overlapping issues between the two fields. For example, increased inflation (macro effect) would cause the price of raw materials to increase for companies and in turn affect the end product’s price charged to the public.

The bottom line is that microeconomics takes a bottoms-up approach to analyzing the economy while macroeconomics takes a top-down approach. Microeconomics tries to understand human choices and resource allocation, and macroeconomics tries to answer such questions as “What should the rate of inflation be?” or “What stimulates economic growth?”

Regardless, both micro- and macroeconomics provide fundamental tools for any finance professional and should be studied together in order to fully understand how companies operate and earn revenues and thus, how an entire economy is managed and sustained.

Both fields of economics are interdependent

At first glance, micro and macro economics might seem completely different from one another. In reality, these two economic fields are remarkably similar, and the issues they study often overlap significantly.

For example, a common focus of macroeconomics is inflation and the cost of living for a specific economy. Inflation is caused by a variety of factors, ranging from low interest rates to expansion of the money supply.

While this might seem like a purely macroeconomic field of study, it’s actually one that’s very important in microeconomics. Since inflation raises the price of goods, services and commodities, it has serious effects for individuals and businesses.

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On a microeconomic level, this has several effects. Businesses are forced to raise their prices in response to the increased cost of materials. They also need to pay their employees more over the long term to account for the higher cost of living.

This is just one example of a macroeconomic phenomenon – in this case, inflation and a rising cost of living – affecting a microeconomics one. Other macroeconomic decisions, such as the creation of a minimum wage or tariffs for certain goods and materials, have significant microeconomics

Karnataka Class 12 Commerce Economics Differences Between Micro And Macro-Economics Notes

Karnataka Class 12 Commerce Economics Differences Between Micro And Macro-Economics : Macroeconomics is the branch of economics that looks at economy in a broad sense and deals with factors affecting the national, regional, or global economy as a whole. Microeconomics looks at the economy on a smaller scale and deals with specific entities like businesses, households and individuals.

Macroeconomics Microeconomics
Definition Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. Microeconomics is the branch of economy which is concerned with the behavior of individual entities such as market, firms and households.
Foundation The foundation of macroeconomics is microeconomics. Microeconomics consists of individual entities.
Basic Concepts Output and income, unemployment, inflation and deflation. Preference relations, supply and demand, opportunity cost.
Applications Used to determine an economy’s overall health, standard of living, and needs for improvement. Used to determine methods of improvement for individual business entities.
Careers Economist (general), professor, researcher, financial advisor. Economist (general), professor, researcher, financial advisor.

Microeconomics vs Macroeconomics

There are differences between microeconomics and macroeconomics, although, at times, it may be hard to separate the functions of the two. First and foremost, both of these terms mentioned are sub-categories of economics itself. As the names of ‘micro’ and ‘macro’ imply, microeconomics facilitates decisions of smaller business sectors, and macroeconomics focuses on entire economies and industries. These two economies are mutually dependent, and together, they develop the strategy for the overall growth of an organization. They are the two most important fields in economics, and are necessary for the rise in the economy.

Microeconomics focuses on the market’s supply and demand factors, that determine the economy’s price levels. In other words, microeconomics concentrates on the ‘ups’ and ‘downs’ of the markets for services and goods, and how the price affects the growth of these markets. An important aspect of this economy, is also to examine market failure, i.e. when the markets do not provide effectual results. In our present time, microeconomics has become one of the most important strategies in business and economics. Its main importance is to analyze the economy forces, consumer behavior, and methods of determining the supply and demand of the market.

On the other hand, macroeconomics studies similar concepts, but with a much broader approach. The focus of macroeconomics is basically on a country’s income, and the position of foreign trades, with the study of unemployment rates, GDP and price indices. Macroeconomists are often found to make different types of models, and relationships, between factors such as output, national income, unemployment, consumption, savings, inflation, international trade, investment, and international finances. Overall, macroeconomics is a vast field that concentrates on two areas, economic growth and changes in the national income.

Governments make policy changes to avoid different types of economic distress, as they know how to steady the economy. This is one of the best approaches to stabilize and ensure the growth of the nation’s economy. Therefore, macroeconomics maintains two strategies:

Fiscal Policy: The most important aspect of fiscal policy is taxation and government spending, where the government will focus of the collecting of revenue to empower the economy. This can create a solid impact on the economic growth.

Monetary Policy: This policy controls the monetary authority, central bank, or government of a country, and focuses on the availability and supply of money and interest rates, in order to sustain the growth of the economy.

Summary:

Microeconomics and macroeconomics are important studies within economics, that are essential to sustain the overall growth and standard of the economy. While the two studies are different, with microeconomics focusing on the smaller business sectors, and macroeconomics focusing on the larger income of the nation, they are interdependent, and work in harmony with each other. The main differences are:

1.Microeconomics focuses on the market’s supply and demand factors, and determines the economic price levels.

2.Macroeconomics is a vast field, which concentrates on two major areas, increasing economic growth and changes in the national income.

3.Microeconomics facilitates decision making for smaller business sectors.

4.Macroeconomics focuses on unemployment rates, GDP and price indices, of larger industries and entire economies.

Microeconomics and macroeconomics are the fundamental tools to be learnt, in order to understand how the economic system is administered, and sustained.

Micro Economics

Pros:

  • It helps in the determination of prices of a particular product and also the prices of various factors of production, i.e. land, labour, capital, organisation and entrepreneur.
  • It is based on a free enterprise economy, which means the enterprise is independent to take decisions.

Cons:

  • The assumption of full employment is completely unrealistic.
  • It only analyses a small part of an economy while a bigger part is left untouched.

Macro Economics

Pros:

  • It is helpful in determining the balance of payments along with the causes of deficit and surplus of it.
  • It makes the decision regarding economic and fiscal policies and solves the issues of public finance.

Cons:

  • Its analysis says that the aggregates are homogeneous, but it is not so because sometimes they are heterogeneous.
  • It covers only the aggregate variables which avoid the welfare of the individual.

Karnataka Class 12 Commerce Economics Differences Between Micro And Macro-Economics Notes

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