what is micro and macroeconomics and what is the difference?
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Microeconomics: How do I make money?
Macroeconomics: How do we make wealth?
It’s like the study of rain and how to deal with it and use it, vs the study of climate which certainly includes rain but looks at a larger scale and bigger effects.
It’s Spice and Wolf vs Maoyuu Maou Yuusha.
There’s a big difference when you zoom out and consider what happens when you can print your own money. Or when long-term trust (let’s call it faith) is a metric. Or when the decisions aren’t about how to make the most money for yourself, but rather about how to set the rules so that others make the most money collectively (and namely how to keep one dude from winning it all by kneecapping everyone else). Microeconomics has a lot to say about streamlining and efficiencies and risk management. Macroeconomics has a lot to say about how to get the stupid gits from taking stupid risks and repeating over and over that no you can’t just print money.
Both are just applications of psychology and sociology, so remember to ditch check rational thought at the door. Both are far softer sciences than the practitioners like to admit.
Microeconomics is concerned with single factors and the effects of individual decisions.
Macroeconomics is concerned with large-scale or general economic factors, such as interest rates and national productivity.
Microeconomics deals with a single business, and macroeconomics deals with the larger economy.
When I think of microeconomics I think of supply and demand. I actually explained supply and demand to my 8-year-old last week. Any enjoyed that conversation so I think that part is easy enough to explain to a 5-year-old if you have an especially bright 5-year-old.
Macroeconomics are all the other things that affect nations and industries and the globe. Things like interest rates, treaties, currency conversions, balance of trade, all the stuff that 5-year-olds really should not be thinking about.
Micro – is Greek for small, so microeconomics means economics (study of how things are organized), applied to small case studies, i.e. every day stuff, e h. How is your salary set, how much should a business charge for a product, should I invest in company X.
Macro is Greek for big, so the study of big tendencies, let’s say it’s bit more theoretical, e.g. what is the effect of higher in interest rates on the American economy or in general, that would be macroenomics vs how higher interest rates affect me or a specific company would be microeconomics.
Now you probably realized that these two things are related it’s very similar to thinking bottom up vs top down, bottom up goes from small details to discover see some truth, where top down tries to look at the big picture, and then dives to details if necessary.
Micro analyzes what happens in small economic systems. It will look at how people make choices, how single markets work (with or without competition), how taxes affect outcomes, how to best manage public resources, etc.
Macro looks at big systems (usually no smaller than nations). It’s tempting to think that macro is just ‘added up’ micro, but it’s more complicated. First, all those ‘small’ systems interact in complicated ways. Second, concerns that might be minor in micro models are very important in macro (eg, sticky prices — prices that change relatively slowly — are crucial to monetary policy).
If you want to understand the dynamics of road resurfacing auction bids in Louisville between 2004 and 2015, you want a microeconomist. If you want an explanation of the early-80s disinflation under Paul Volcker, you want a macroeconomist.
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