Microeconomics and Macroeconomics - Definition and Differences

Microeconomics

The term “Micro” is derived from the Greek word ‘Mikros,’ which means ‘tiny or small.’ It can be defined as a branch of economics that deals with individual economic phenomenon. In economics, it focuses on the analysis of individual or specific goods and means. Micro Economics involves the analysis of one commodity, one consumer, or one industry, making it a relatively narrow field in economic studies.

According to Professor Kenneth Ewart Boulding, “Economics studies specific households, individual prices, individual incomes, and industries, along with specific goods.” The central theme in economics is the determination of prices and the analysis of how prices impact demand and supply. This is why it is often referred to as the ‘price theory.’

Macroeconomics

The term ‘macro’ in English is adapted from the Greek word ‘Makros,’ meaning ‘big or large.’ Therefore, macroeconomics is a branch of economics that focuses on the analysis of large-scale or overall economic units. In macroeconomics, the entire structure of the economy is examined, including total and average values related to it. This includes the analysis of total national income, total savings, total wages, and total consumption, among other aspects. Consequently, comprehensive economics involves the analysis of the entire economic situation as a whole. For instance, analyzing the income of a single family or the production of a specific firm falls under macroeconomics, while analyzing the total national income and the production of entire industries is part of comprehensive economics.

Kenneth Ewart Boulding defines Macro economics as the branch of economics dealing with aggregates rather than individual or national income.

Macroeconomics is concerned with the general price level, as opposed to individual production or national production. Given its examination of income, wages, and output across the entire economy, it is also known as the ‘theory of income, employment and money.’

Differences between Microeconomics and Macroeconomics

While microeconomics and macroeconomics are interconnected, there are some differences between the two, as outlined below:

(A) The term ‘micro’ is rooted in the Greek word ‘Mikros,’ meaning small. Consequently, microeconomics deals with small-scale or individual economic units. In contrast, the term ‘macro’ comes from the Greek word ‘Makros,’ meaning big or aggregate. Therefore, macroeconomics studies large-scale or overall economic variables.

(b) Microeconomics is the branch of economics that studies individual economic units, while macroeconomics focuses on the economy as a whole.

(c) Topics in microeconomics include family economics, commodity prices, worker wages, individual income, firm or industry output, etc. In contrast, macroeconomics covers subjects like national income, gross national product, per capita income, gross savings, gross wages, and gross consumption.

(d) Macroeconomics is often referred to as the theory of pricing because it investigates how the prices of commodities or instruments are determined. Conversely, it is also known as the theory of income and wages because it analyzes the income, employment, and production of the entire economy. For example, microeconomics involves the analysis of an individual family’s annual income and expenditure, while macroeconomics delves into the income and expenditure of all households in the country.

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