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Macro and Micro Economics

CMS Vocational Training Hadyn Luke posted this on Wednesday 24th of July 2019 Hadyn Luke 24/07/2019


Macro and Micro Economics

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:

  1. 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.

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