Microeconomics Versus Macroeconomics

Microeconomics is the study of how individuals, households, and firms make decisions and how those decisions interact.

Macroeconomics is concerned with the overall ups and downs of the economy.

Economic aggregates are economic measures that summarize data across many different markets.

We have presented economics as the study of choices and described how, at its most basic level, economics is about individual choice. The branch of economics concerned with how individuals make decisions and how those decisions interact is called microeconomics. Microeconomics focuses on choices made by individuals, households, or firms—the smaller parts that make up the economy as a whole.

Macroeconomics focuses on the bigger picture—the overall ups and downs of the economy. When you study macroeconomics, you learn how economists explain these fluctuations and how governments can use economic policy to minimize the damage they cause. Macroeconomics focuses on economic aggregates—economic measures such as the unemployment rate, the inflation rate, and gross domestic product—that summarize data across many different markets.

Table 1.1 lists some typical questions that involve economics. A microeconomic version of the question appears on the left, paired with a similar macroeconomic question on the right. By comparing the questions, you can begin to get a sense of the difference between microeconomics and macroeconomics.

Table 1.1Microeconomic Versus Macroeconomic Questions

Microeconomic Questions Macroeconomic Questions
Should I go to college or get a job after high school? How many people are employed in the economy as a whole this year?
What determines the salary that Citibank offers to a new college graduate? What determines the overall salary levels paid to workers in a given year?
What determines the cost to a high school of offering a new course? What determines the overall level of prices in the economy as a whole?
What government policies should be adopted to make it easier for low-income students to attend college? What government policies should be adopted to promote employment and growth in the economy as a whole?
What determines the number of iPhones exported to France? What determines the overall trade in goods, services, and financial assets between the United States and the rest of the world?
Table 1.1: Table 1.1 Microeconomic Versus Macroeconomic Questions

As these questions illustrate, microeconomics focuses on how individuals and firms make decisions, and the consequences of those decisions. For example, a school will use microeconomics to determine how much it would cost to offer a new course, which includes the instructor’s salary, the cost of class materials, and so on. By weighing the costs and benefits, the school can then decide whether or not to offer the course. Macroeconomics, in contrast, examines the overall behavior of the economy—how the actions of all of the individuals and firms in the economy interact to produce a particular economy-wide level of economic performance. For example, macroeconomics is concerned with the general level of prices in the economy and how high or low they are relative to prices last year, rather than with the price of a particular good or service.

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