Microeconomics and macroeconomics are Definition, fundamentals, principles, goals and applications in business

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:55

Macroeconomics and microeconomics are the two most important concepts of economic theory. Why is the whole economy divided in this way? To answer this question, let's try to understand each of the terms separately, and then consider them in relation.

Feature of economics as a science

Economics (macroeconomics, microeconomics) is not only a practical but also a scientific discipline. It is engaged in the study of issues related to the distribution of resources, financial flows, the efficiency of economic and entrepreneurial activities. Its very name suggests that the main goal of the economy is to develop ways for the most efficient (not requiring extra costs) use of resources and rationalization of the economy.

The concepts of "macroeconomics" and "microeconomics" have been present in economic theory for a long time. Now, when planning any activity, a miscalculation of economicparameters, as well as possible environmental consequences. In all civilized countries, this practice is mandatory.

Features of microeconomics

Microeconomics deals with the analysis of the economic activities of individual economic entities: households, firms, enterprises. All decisions made within them are components of microeconomics. Thus, the named discipline studies economic processes at the local, local level.

The main microeconomic task that almost every private entrepreneur sets himself is to maximize profits. Therefore, every effort is made (within the framework of existing laws and the current situation) to produce as many goods as possible and charge them the highest possible price.

The consumer tries to get the goods he needs at the lowest price. At the same time, unlike the manufacturer, the quantity of the purchased goods is limited by his individual needs, and the goal of getting as much as possible is often not worth it.

Microeconomics, unlike macroeconomics, studies local economic systems and objects and never deals with problems of the federal, let alone the global level. Therefore, the term "state" is absent in this discipline.

Main activities in microeconomics:

• Production.
• Exchange.
• Distribution.

Microeconomics tries to explain how and why individual economic entities make certain decisions, and what factors influence this. For example, it considers issues such as decision-making by the management of the enterprise on the number of employees, the actions of buyers when choosing certain goods, the impact on the buyer of changes in prices and personal income, and many others.

In the process of decision-making by private actors, factors such as supply and demand are of great importance. In microeconomics, there is a theory of public choice, which is an independent section of economic theory.

What is demand

Demand is the volume of a good or service that a buyer will agree to purchase at a certain set price for it. When prices fall, demand rises, and when prices rise, demand falls. Thus, it is possible to construct a demand curve depending on the price. It is also influenced by the level of income, the characteristics of the buyer himself, the promotion of the brand, etc.

What is the offer

This term refers to the quantity of goods or services that the manufacturer is willing to offer, based on their price and production capabilities, as well as the cost of production, taxes and other factors. The supply curve shows the dependence of the latter on the price of a good. Usually, when it increases, the supply increases. If the costs of producing a product turn out to be more than the proceeds from its sale, then it may become unprofitable for the manufacturer to sell his product and eventuallyaccount, the enterprise may go bankrupt.

The presence of competition with other suppliers often leads to a decrease in the final cost of products.

What macroeconomics studies

As already mentioned, microeconomics and macroeconomics are two components of economic science. But macroeconomics is different in that it studies the entire economy as a whole and in a wider territorial scope. Its founder is John Keynes. This coverage allows us to answer many burning questions, considering:

• unemployment rate;
• headline inflation;
• growth, stagnation or recession of the economy;
• GDP dynamics;
• total cash flows;
• world exchanges;
• total value of imports and exports of the state;
• loan rates;
• general purchasing power of the population;
• investment attractiveness;
• gold and foreign exchange reserves and total government debt.

The most important macroeconomic components are gross domestic product (GDP) and gross national product (GNP), as well as the rate of inflation, the exchange rate and the overall unemployment rate.

The economy is usually divided into 3 markets: the market for goods and services, the financial market and the market for production equipment. In addition, 4 agents are distinguished in it - these are enterprises, households, the state and a foreign factor. All of them are interconnected by economic ties.

Interaction of microeconomics and macroeconomics

Both have something in commonconsidered components are present - they are interconnected. Thus, global economic indicators, such as a country's GDP or commodity flows, are largely determined by the activity of private economic and financial actors.

And the global growth in demand for fuel is highly dependent on the preferences of each individual. When people switch en masse from public transport to private cars, fuel consumption increases dramatically. As a result, this provides an incentive for rising oil prices. On the other hand, many car manufacturers are now voluntarily switching from building ICE cars to hybrid or electric cars. Over time, this will begin to affect global demand for oil and could trigger a decline in its price. This situation will hurt such large economies as Russia or the Middle East.

Thus, microeconomics and macroeconomics are two interrelated disciplines that differ in their scope and object of study. Macroeconomics considers everything more generally, globally, and microeconomics - at the level of individual entrepreneurs and individuals.