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While these two studies of economics appear to be different, they are actually interdependent and complement one another since there are many overlapping issues between the two fields. For example, increased inflation (macro effect) would cause the price of raw materials to increase for companies and in turn affect the end product's price charged to the public.
The bottom line is that microeconomics takes a bottoms-up approach to analyzing the economy while macroeconomics takes a top-down approach. Regardless, both micro- and macroeconomics provide fundamental tools for any finance professional and should be studied together in order to fully understand how companies operate and earn revenues and thus, how an entire economy is managed and sustained.
Microeconomics vs Macroeconomics
Micro economic is a branch of economics which focuses on the market attitude of the individual customers and organizations which enables the business to understand the market behavior in micro perspective. Micro economics enables the business organizations to take decisions on the smaller and critical aspects; it also takes the factors affecting such decisions into consideration. It was Adam Smith - the father of economics who did an elaborative analysis on these concepts that is micro and macro economics. Micro economics today is become an important branch of study in the field of economics and business.
Importance of micro economics can be highlighted by the following points:
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It enables in establishing a method which can analyze individual economic forces.
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The market behavior of the consumers can be understood which is very much helpful in decision making through micro economics.
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It also lead to understanding of the individual supply and demand determinants of the market.
Now let us take look at what macro economics means. Macro economics is that branch of economics which studies the economics in a broader sense for example it deals with national income of the country or the buying behavior of the Indians and foreign trade position of India. Here the behavior of the economy is studied as a whole and as matter of fact both macro and micro economics are very inter-dependent in nature and both influence in decision making and strategy formulating of an organization.
Micro economics studies the individual behavior that is it„« studies the consumption behavior or attitude of a consumer whereas macro economics on the other hand studies the overall market structure, that is enables the organization to understand the size and capacity of the market.
Though they are interdependent they are still different from one another and the following points will justify their differences:
The demand in micro economics directly depends on the„« individual's expectations where as in micro economics the demand depends on the organization's expectations.
In the pricing method micro economics„« concerns with the price of a individual product whereas in macro economics the overall production costs is considered
Taxation is another example which„« determines the difference between these two fields of economics. Micro economics deals with the individual's tax aspects where macro economics deals with the overall tax aspects of the country.
Therefore by looking at the above differences between micro and macro economics we can conclude that both these approaches towards the field of economics today occupy a valuable niche.
Interdependence of Micro and Macro Economics:
The classical approach to macro economics is that individuals and firms act in their own best interest. The wages and prices adjust quickly to achieve equilibrium in the free market economy.
The Keynesian approach to macro economics is that wages and prices do not adjust rapidly and unemployment may remain high for a long time. The Keynesians are of the view that government intervention in the economy can help in improving economic performance.
Conclusion:
The micro and macro economics are interdependent. They are complementary and not conflicting. We cannot put them in water tight compartments. Both these approaches help us in analyzing the working of the economy. If we study one approach and neglect the other, we are considered to be only half educated.
We should integrate the two approaches for the successful analysis of the working of economic system. The macro approach should be applied where aggregate entities are involved and micro approach when individual cases are to be examined. If we ignore one and lay emphasis on the other, it will lead to wrong or inadequate conclusions.
More about Micro and Macro Economics.
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