Economics · Ch 1 — Introduction to Micro and Macro Economics
Distinguishing Between Microeconomics and Macroeconomics
7
Distinguishing Between Microeconomics and Macroeconomics
The table below summarises the main points of difference between Microeconomics and Macroeconomics studied in this chapter.
| Basis of Difference | Microeconomics | Macroeconomics |
|---|---|---|
| Meaning | Studies individual economic units — a consumer, firm, industry or commodity | Studies the economy as a whole, using aggregates |
| Also known as | Price Theory | Income Theory (Aggregate Economics) |
| Method used | Slicing Method | Lumping Method |
| Type of equilibrium | Partial Equilibrium (one market at a time) | General Equilibrium (all markets together) |
| Central problem studied | How the price of an individual good or factor is determined | How national income, output and employment are determined |
| Key variables | Individual price, individual demand and supply, a firm's output and cost | National income, aggregate demand and supply, the general price level, total employment |
| Boulding's definition | "...particular firms, particular households, individual prices, wages, incomes, individual industries, particular commodities." | "...aggregates of these quantities...national income...general price level...national output." |
| Chief limitation | Cannot explain aggregate/economy-wide phenomena (fallacy of composition) | Aggregates can conceal individual-level variation (fallacy of division) |
| Example question | Why did the price of onions rise in a local market last month? | Why did the country's inflation rate rise last year? |