Microeconomics vs Macroeconomics Essay

According to Kay (2010) a microeconomist speaks about what causes the price of particular products to fluctuate. On the other hand, a macroeconomists talks about things like inflation, what the target interest rate should be, what influences employment and unemployment (Kay, 2010). Microeconomics studies the decision of consumers and firms with respect to allocation of resources of goods and services. Consumers makes consumption decisions and firms make production decisions.

Microeconomics focuses on how individuals, households, and organizations make their decisions to distribute resources that are limited, typically in a market which sees trade of goods or services. On the other hand, Macroeconomics studies the behavior of the economy and its entirety, on larger scale (Investopedia ULC. 2010). Macro-economics studies the entire economic activity, covering he issues of growth, inflation, and unemployment and with national economic policies relating to these issues and the effects of government actions.

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Macroeconomics is dependent on the regional government which will differ from one country to another and in some cases even one state to another. This is due to different forms of government and policies in different parts of the world. Microeconomics on the other hand, depends on mainly the behavior of people in various parts of the world. It is the standard approach of microeconomics, although not without controversy, to assume that consumers seek to maximize satisfaction and firms seek to maximize profits.

The mechanism through which consumers and firms interact with each other is the market. Microeconomics analyzes the determination of market demand and supply, various forms of market structures, and how they affect economic efficiency. From our discussion so far, it should be clear that microeconomics is very important for anyone who needs to make business decisions. This can be one practical reason why we study microeconomics–we want to be well prepared if we will be in a position of making business decisions in the uture. But that is not the only reason why microeconomics is an important subject. We are all consumers. Knowing how the market works is also important for a consumer. When you shop for a car, for example, it would be useful for you to know the market structure and the pricing strategies of the dealers. More generally, microeconomics is useful for any educated member of a society. Any society has to decide how to allocate its scarce resources. Like a firm, a society needs to decide what to produce and how to produce.

It also needs to answer the question of for whom to produce. Microeconomics helps us understand how these questions are answered by the markets, and how economic efficiency can be achieved, sometimes with the intervention of the government. In conclusion, macroeconomic forecasts are useful tools that provide individual corporations with necessary data that can clue them in making important decisions. HOPE is an example of a company who uses macroeconomic concepts and activity to base many of its microeconomic decisions on.

With the better understanding of the economy as a whole, businesses can project their own forecasts to fit their operational needs and goals. References Investopedia ULC. (2010), Economics, Retrieved from http://www. investopedia. com/ask/answers/110. asp Kay, C. K. (2005-2010) MoneyNowUSA. California, Retrieved from http://www. money now usa. com/about_us. php Perloff, J. M. (2007). Microeconomics (4th ed. ). New York City, NY: Pearson Addison Wesley.


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