Economics is the study and analysis of how wealth is produced,
consumed and transferred, in particular in relation to goods and services.
Macro and Micro Economics look at these concepts from different
perspectives, but both relate to activities that have an effect on our economy
and therefore on how we all live.
What are Macro and Micro Economics?
In brief, Macro Economics deals with major issues on a large scale
or the study of the economy as a whole – whether regional, national or global. As
well as the performance, structure, behaviour and decision-making of an
economy, it’s about the connections between countries. For example, how growth
or a slowdown in the economy of a developed country might affect the economy of
a developing country, or vice versa.
Micro Economics is more concerned with single issues and the
impact that individual decisions and actions have on people and the economy.
What are the key issues of Macro Economics?
Macro
Economics is primarily concerned with three key issues:
Prices – keeping
prices stable and controlling price rises
Growth – usually measured
by Gross Domestic Product (GDP), growth shows how the economy expands over time
Jobs – increasing
employment and limiting unemployment
What
other issues is Macro Economics concerned with?
There
are a range of other issues that fall under the banner of Macro Economics.
Examples include:
Government
policy – how political decisions affect the economy, for example,
increasing or lowering taxes, decisions made about government spending or
legislation that affects the way companies do business.
Inflation
– a measurement of price increases, which reduce the purchasing
power of a country’s currency.
Human
development – looks at people’s opportunities, freedoms and wellbeing,
measuring aspects such as income, health and education.
Trade
– the buying and selling of goods and services.
Globalisation
– howdevelopments in communication and travel have increasedinternational trade, integration and the sharing of ideas between
businesses and countries.
Living
standards – and whether they are improving or getting worse; often
measured by GDP per capita (per head of population).
Trade
– the balance between imports and exports.
Equality
– the equitable distribution of wealth; relevant to both Macro
and Micro Economics.
Other
significant issues include but are not limited to:
- How to reduce a country’s budget deficit and the
size of its national debt
- How to address regional imbalances in wealth, jobs,
opportunity and funding
- Public services such education, healthcare and
transport
- Competitiveness in a fast-changing economy
- The climate crisis and environmental sustainability
These
can be considered more or less important depending on their significance to a
particular country; for example, the climate crisis may adversely affect
developing countries faster and more dramatically than developed countries, for
reasons such as poor infrastructure or reliance on historic weather patterns
for food production.
What
are the key issues of Micro Economics?
Micro
Economics is primarily concerned with single facts and the effects of decisions
made by individuals, in particular on how goods and resources are used and
distributed. These individuals act independently but their activities are often
analysed in groups, for example, buyers and sellers.
Key
issues are:
Supply and demand – this
influences price in a competitive market.
Production theory – how businesses
can minimise cost and maximise profit by streamlining production.
Utility theory – how
consumers purchase and consume goods, depending on preference and their available
spending power.
What
other issues is Micro Economics concerned with?
Another
key consideration of Micro Economics is Market Structure.
There
are four market structures:
- Perfect competition –
where there is free entry into and exit from the market, and those buying and
selling offer the same products and don’t have much influence on the market.
- Monopoly – where there’s one seller with full or major control
over both supply and prices.
- Oliogopoly – a market with just
a few dominant large companies; with high barriers to entry and where makers
set prices but with some interdependent behaviour.
- Monopolistic – where there are
several large sellers offering products that are similar but not identical, with
competition based on facts other than price.
While
Micro Economics is considered a more advanced and complete science than Macro
Economics, the study of both are important within the larger picture of
understanding economic theory.
