Microeconomics Vs Macroeconomics

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Microeconomics and macroeconomics are broad branches of economics.

Microeconomics is the study of how individuals, groups of individuals, and firms make decisions and how these decision-makers interact in the marketplaces. It looks at how these single units function individually. A central principle of microeconomics is that households and firms optimize (maximize) utility and profits respectively.

Economy-wide events arise from the interaction of many individuals, households and firms, so microeconomics and macroeconomics are linked. Because aggregate variables are the sum of the variables describing many individual decisions, macroeconomic theory based on a microeconomic foundation. But although microeconomic decisions cause macroeconomic phenomena, macroeconomic models do not necessarily focus on the optimizing behavior of households and firms; they sometimes leave that behavior in the background.

Macroeconomics studies the economy as a whole. To study the economy as a whole, we must consider the decisions of individual economic actors. For example, to understand what determines total consumer spending, we must think about a family deciding how much to spend today and how much to save for the future. To understand what determines total investment spending, we must think about a firm deciding whether to build a new factory.

 

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