Micro or Macro?...That is the question...
Economics is concerned with the well-being of all people, including those with jobs and those without jobs, as well as those with high incomes and those with low incomes. Economics acknowledges that production of useful goods and services can create problems of environmental pollution. It explores the question of how investing in education helps to develop workers’ skills. It probes questions like how to tell when big businesses or big labor unions are operating in a way that benefits society as a whole and when they are operating in a way that benefits their owners or members at the expense of others. It looks at how government spending, taxes, and regulations affect decisions about production and consumption.
It should be clear by now that economics covers a lot of ground. That ground can be divided into two parts: Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses. Macroeconomics looks at the economy as a whole. It focuses on broad issues such as the growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports. Microeconomics and macroeconomics are not separate subjects, but rather complementary perspectives on the overall subject of the economy.
To understand why both microeconomic and macroeconomic perspectives are useful, consider the problem of studying a biological ecosystem like a lake. One person who sets out to study the lake might focus on specific topics: certain kinds of algae or plant life; the characteristics of particular fish or snails; or the trees surrounding the lake. Another person might take an overall view and instead consider the entire ecosystem of the lake from top to bottom; what eats what, how the system stays in a rough balance, and what environmental stresses affect this balance. Both approaches are useful, and both examine the same lake, but the viewpoints are different. In a similar way, both microeconomics and macroeconomics study the same economy, but each has a different viewpoint.
Whether you are looking at lakes or economics, the micro and the macro insights should blend with each other. In studying a lake, the micro insights about particular plants and animals help to understand the overall food chain, while the macro insights about the overall food chain help to explain the environment in which individual plants and animals live.
In economics, the micro-decisions of individual businesses are influenced by whether the macroeconomy is healthy; for example, firms will be more likely to hire workers if the overall economy is growing. In turn, the performance of the macroeconomy ultimately depends on the microeconomic decisions made by individual households and businesses.
Activity Choices to Apply Concepts
- Macroecomics Activity: Find out “What is a Dollar Worth” by visiting the Federal Reserve Bank of Minneapolis
- Macroeconomics Activity: Economic Freedom, Prosperity, and the Quality of Life
- Macroeconomics Activity: What Should the Role of Government Be in Providing Goods and Services?
- Macroeconomics Activity: Government Spending, Subsidies, Taxes and Opportunity Costs
- Macroeconomics Activity: Gross Domestic Product: What It Is and How It Is Measured
By Tawni Hunt Ferrarini, Northern Michigan University’s Center for Economic Education and Entrepreneurship and James Gwartney, Florida State University’s Center for the Advancement of Free Enterprise and Economic Education
|[Figure 1]||Credit: Satish Panday, studied Economics at Pannalal Girdharlal Dayanand Anglo Vedic, University of Delhi (2013)
License: CC BY-NC 3.0