Title: Hidden Content (Click to reveal)
Course: BTEC-1300-301-302-303-F21

Micro vs. Macro

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 growth, unemployment, inflation, and trade balance. Microeconomics and macroeconomics are not separate subjects but are, 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 remains in balance, and what environmental stresses affect this balance. Both approaches are useful, and both researchers study 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 starting point, perspective, and focus.

Whether you are looking at lakes or economics, the micro and the macro insights should illuminate each other. In studying a lake, the “micro” insights about particular plants and animals help us 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 the health of the macroeconomy—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.

Licenses and Attributions

- Revision and adaptation. Authored by: Lumen Learning. Provided by: Lumen Learning. Located at: Reading: Microeconomics and Macroeconomics License: CC BY: Attribution
- Original text. Authored by: OpenStax College. Provided by: Rice University. Located at: Principles of Macroeconomics Chapter 1.2 License: CC BY: AttributionLicense Terms: Download for free at http://cnx.org/contents/4061c832-098e-4b3c-a1d9-7eb593a2cb31@11.11
- Image. Authored by: Victor. Located at: Vermilion Lake License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives