While both macro economics and micro economics deal with financial material, choices, and the mechanisms that drive economies, knowing the difference between them is crucial. Whether you’re following international market trends or designing a household budget, a firm grasp of the concepts that govern these economic fields and an understanding of how they differ will stand you in good stead.
What We Mean By Economics
When economics is referenced, we usually mean micro economics. This branch of the field examines the individual consumer choices and company movements within a larger context. As the name indicates, it uses a precise focus to determine how market mechanisms work in real time.
Some of the features of the micro realm are supply and demand, equilibrium, consumer demand theory, theory of production and its costs, perfect competition dynamics, oligopolies and monopolies within the market, Game Theory, and both labor and market economic dynamics. Within each of these domains, the focus remains fixed on the choices of the individual, with companies standing as individual entities where applicable.
This facet of economics assumes that the single actor is a rational and utility-maximizing person or entity and that they make choices based on projected outcomes that yield the greatest benefit to them within any given dynamic. Markets, which do feature within its focus, are not the primary topic. Rather, every theory within the sub-field deals with the aggregate of individual choices, motivations, and interactions.
Perhaps the greatest critique of its characterization of actors as rational and benefit-maximizing individuals comes from fields of social science, each of which analyzes human behavior. Agents seldom act in a purely rational way, even when their benefit is at stake. Instead, people are susceptible to suasion from a wide variety of sources. Critics argue that this must be taken into account if such economic models are to accurately predict aggregate behaviors.
All the World’s an Economic Stage
Macro economics is much broader in scope and deals with international matters of finance beyond even the most complex global corporate interests. While the micro field addresses the individual choices and acts that make up an aggregate market, macro concerns itself with the motions and developments of those aggregates with each other.
It examines government policies, the titanic movements of entities such as the International Monetary Fund (IMG) and the World Bank, and the impacts of large-scale events like famine, war, and pandemic diseases on the international dynamic. The macro field uses terms such as Gross Domestic Product (GDP), price indices, unemployment rate, consumption and output, inflation, and national income. Micro concerns operate in the moment, attempting to predict which way local and regional markets will turn based on the individual actions and choices of a population. Macro takes a longer view and tries to predict via its models how the economies of countries interplay, both now and in the future.
Although each general field of economics is essential to our total understanding of how currencies and commodities flow, their differed foci matter. Even the imperfect assumption that all actors will rationally choose options that maximize their benefit can teach us how to more accurately predict sudden market shifts or collapse dynamics. Beyond micro economics, macro economics paints the international picture with greater clarity and precision, permitting analysts to examine economic recovery rates following collapse or the emergence of new markets, which bloom from the fertile matrix of the micro realm.