Exotech | Like other scientific fields, macro and micro economics have differences with theories that are easy to understand. Macro and micro economics itself is part of the scientific field of economics. Before we discuss further the differences between macro and micro economics, it is a good idea to first review the meaning of each.
Get to know macro and micro economics
To understand the difference between macroeconomics and microeconomics, you must understand the meaning of both first. The following is the definition of macroeconomics and microeconomics.
1. Understanding Macroeconomics
Technically, macroeconomics is a holistic study of the structure, performance, behavior and process of economic decision making at the national level. Basically, macroeconomics is also known as a top-down approach. The main function of macroeconomics is to help us understand changes in a country's Gross Domestic Product.
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Not only that, macroeconomics is also a tool to help us understand inflation expectations as well as inflation, expenditure, revenues and loans at the government level (financial policy), unemployment figures and monetary policy in a country.
Simple, macroeconomics is an instrument for interpreting and understanding the overall economic situation so that policies can be formulated at a higher level (government), not at an individual, let alone a company.
2. Understanding Microeconomics
The definition above is of course different from the definition of microeconomics. Technically, microeconomics is the science of behavior in making decisions. In its application, microeconomics can be used in the life of a company or household.
Microeconomics has an influence on every decision made by a business owner or head of household regarding the allocation of resources or capital owned. If macroeconomics is a top-down approach, then microeconomics is a bottom-up approach.
As a simple illustration to get to know microeconomics better, here are the things that can be understood when we use microeconomics:
- How people and households spend their monthly or annual budgets
- What kind of products and services suit the needs and desires of the market based on the available budget
- How someone decides to work and what form their work takes, whether full time or part time
- How a person decides to save in the future and how much funds are taken from income and saved
- How a business produces and sells their products
- How many products does the company sell and to how many consumers
- How does a company decide to lay off or recruit employees during a pandemic
- Since when can a business expand or even close
From the explanation of the meaning above, have you got an idea of the differences between macro and micro economics?
Differences between Macro and Micro Economics
There are at least two points that show the difference between macroeconomics and microeconomics, namely:
- Microeconomics studies the behavior of individuals, consumers, workers, investors, land owners and company owners who are also known as economic agents. This science also explains how each economic agent makes choices and the influence of his choices on changes in prices or income.
- Meanwhile in macroeconomics, we will study the behavior of a group of economic agents as a whole.
The two points above can be called the basic differences between macro and micro economics. When viewed from another point of view, there are several more points that show the differences between macro and micro economics, namely:
- Macroeconomics seeks to find a general perspective at the national level while microeconomics focuses on the individual perspective at the consumer level.
- Macroeconomics focuses on various economic cycles such as long and short term debt cycles while microeconomics applies supply and demand based on buyer and seller trends.
- The scope of macroeconomics is much broader and general (for example: fiscal and monetary policy), while the scope of microeconomics tends to be more specific, namely regarding the theory of prices, production and distribution.
Even though there are differences in general and in particular, both macro and micro economics actually influence each other. When there is a new macroeconomic policy, all microeconomic activities will definitely be affected, resulting in ups and downs in individual economic levels.
Likewise, when a new phenomenon occurs in the microeconomic climate, the government will definitely determine appropriate macroeconomic policies or adjust them so that the country's economic conditions remain stable. So, are you starting to understand the difference between the two?
Principles of Macro and Micro Economics
Macro and micro economic principles are basically not much different from general economic principles. There are at least 3 things that are the main discussion in macro and micro economic principles, including:
- Production: In production activities, economic principles are used as the basis for producing goods and services at certain production costs. This is why in the process, there are many factors involved starting from the place of business, workforce, marketing area, to raw materials.
- Distribution: In distribution activities, both macro and micro economic principles focus on the distribution of goods and services along with all the factors that influence them, such as location, type of goods or services, and the distribution infrastructure used.
- Consumption: Macro and micro economic principles in terms of consumption can be seen from the use of goods and services and how they provide maximum satisfaction. In the process, there are many economic activities involved, including the bargaining process.
Macro and Micro Economic Influences
After discussing the differences between macro and micro economics and the principles of macro and micro economics, let's next review the influence of both in the economic life of society in general and specifically.
1. Law of Supply and Demand
In understanding consumer behavior, business people often use microeconomic principles so that the policies they make have a positive effect and generate profits.
2. Decision Making
Decision making here is of course related to economic activities. In practice, various macroeconomic factors definitely have an impact on microeconomic factors. For example, changes in political, social rules and technological advances in a country will certainly influence the economic policies of individuals or organizations.
3. Start Up
Macro and micro economics also influence business start-up activities. This is why when deciding to become an entrepreneur, we are expected to be able to analyze the economic conditions around us which can directly or indirectly influence the progress of the company or not.
This kind of policy will really help us in achieving our business building goals, including being able to attract customers and make a profit.
4. Economic Cycle
It is certain that macro and micro economic dynamics will influence the economic cycle, either positively or negatively. This is why we are expected to be able to understand economic conditions as a whole so that we can adapt and adjust our personal economic conditions to survive.
5. Pricing Decisions
Micro and macro economic conditions also influence price decisions made by the government. Even though sometimes these decisions are considered detrimental, this must be done so that economic conditions remain stable and conducive.