Business Economics · Ch 1 — Nature and Scope of Business Economics
Microeconomics and Macroeconomics
Microeconomics and Macroeconomics
To understand where Business Economics draws its theory from, a student must clearly distinguish the two great branches of economics: microeconomics and macroeconomics. The words come from Greek — micro meaning "small" and macro meaning "large."
Microeconomics studies economic behaviour at the level of the individual unit — a single consumer, a single firm, a single product, a single market. It answers small-scale questions such as: how does one consumer decide what to buy? How does one firm decide its output and price? How is the price of one commodity determined by its demand and supply? Because Business Economics is chiefly about the decisions of an individual firm, microeconomics is its main foundation.
Macroeconomics studies the economy as a whole — aggregates rather than individual units. It answers large-scale questions such as: what determines the total national income? What causes overall unemployment or general inflation? Why does the whole economy go through booms and slumps (trade cycles)? A firm cannot control these forces, but it must understand them, because they shape the environment within which it operates.
The two branches are not rivals — they are complementary. A firm's own micro decisions (output, price) are taken inside a macro environment (national income, inflation, government policy) it must read correctly. That is exactly why the scope of Business Economics (previous section) includes both.
Micro vs Macro — the essential contrast
Micro = the individual tree (one consumer, one firm, one market). Macro = the whole forest (national income, general price level, total employment).
| Basis | Microeconomics | Macroeconomics |
|---|---|---|
| Meaning | Study of individual economic units | Study of the economy as a whole |
| Focus | A single consumer, firm, product, or market | Aggregates — national income, total output, general price level |
The branch of economics that studies the behaviour of individual economic units — a single consumer, firm, product, or market — and how the prices of individual goods and services are det …
The branch of economics that studies the economy as a whole, dealing with aggregates such as national income, total employment, and the general price level. Also called …