MAE-03 : Microeconomics vs. Macroeconomics
Economics is divided into two different categories: microeconomics and
macroeconomics. Microeconomics is the study of individuals and business
decisions, while macroeconomics looks at the decisions of countries and
governments.
Microeconomics is the study of decisions made by people and businesses regarding
the allocation of resources and prices of goods and services. It also takes into
account taxes, regulations, and government legislation.
Microeconomics focuses on supply and demand and other forces that determine the
price levels in the economy. It takes what is referred to as a bottom-up approach to
analyzing the economy. In other words, microeconomics tries to understand human
choices, decisions, and the allocation of resources.
Macroeconomics, on the other hand, studies the behavior of a country and how its
policies affect the economy as a whole. It analyzes entire industries and economies,
rather than individuals or specific companies, which is why it's a top-down approach.
It tries to answer questions like "What should the rate of inflation be?" or "What
stimulates economic growth?" Macroeconomics focuses on aggregates
and econometric correlations, which is why it is used by governments and their
agencies to construct economic and fiscal policy. Investors of mutual funds or
interest-rate-sensitive securities should keep an eye on monetary and fiscal policy.
Outside of a few meaningful and measurable impacts, macroeconomics doesn't offer
much for specific investments.
Micro economics involves
Supply and demand in individual markets.
Individual consumer behaviour. e.g. Consumer choice theory
Individual labour markets – e.g. demand for labour, wage determination.
Externalities arising from production and consumption. e.g. Externalities
Government borrowing
