Microeconomics and Macroeconomics

The study of economics has traditionally been divided into two broad branches: microeconomics and macroeconomics. This division helps us organise the vast subject matter of economics by focusing on different levels of analysis.

Microeconomics examines the behaviour of individual economic agents — households, firms, and individual consumers — in the markets for specific goods and services. The central question here is how prices and quantities of particular goods and services are determined through the interaction of buyers and sellers in those individual markets. For example, microeconomics would ask: what determines the price of wheat in the local market, or how many units of a particular brand of mobile phone will a firm produce?

Macroeconomics, in contrast, looks at the economy as a single whole. Instead of focusing on one market or one agent, it concentrates on aggregate measures — the big-picture totals. The key aggregates studied are total output (the overall production of goods and services in the economy), total employment (how many people are working), and the aggregate price level (the average level of all prices). Macroeconomics seeks to understand how these aggregate measures are determined and how they change over time.

The textbook lists several important questions that macroeconomics tries to answer:

• What is the level of total output in the economy?
• How is that total output determined?
• How does total output grow over time?
• Are the economy's resources, such as labour, fully employed?
• What are the reasons behind the unemployment of resources?
• Why do prices rise in general (inflation)? …