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Microeconomics and Macroeconomics Differences Essay

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Updated: Nov 25th, 2021

Introduction

The fast development of the world in this 21st Century depends on application of the principles of economics. Its effects are widespread and far-reaching: from the ardent financier in Texas, now rendered jobless due to downsizing, to the one in the isolated parts of Africa, who makes every effort to avoid the intruding urbanization. The perception of macroeconomics is in terms of a worldly view of resources while microeconomics entails a more individual feature of the economy.

Main Body

Microeconomics is a branch of economics that investigates how households and firms formulate decisions to apportion inadequate resources, especially in a market scenario where the buying and selling of goods as well as services takes place (Pindyck & Rubinfeld, 2005, p.3). This branch of economics finds out how decisions made affect the supply and demand of goods and services.

This makes the difference from macroeconomics, which appertains to the sum total of the activities of the economy. The following matters are addressed: economic growth, inflation, joblessness, and with policies of national concern that relate to these matters. Macroeconomics also entails study of repercussions of actions taken by the government (Hoover, 2001; Blinder & Baumol, 2009).

Microeconomics investigates market systems that give yield to relative values between goods and services and allotment of inadequate resources between the numerous different users. Microeconomics studies market failure, where markets do not yield competent outcomes, in addition to elaborating on the theoretical circumstances necessary to achieve perfect competition. The common thread between the two economic fields is that they seek to discover how both individuals and nations act in response to diverse financial constraints.

In as much as these two categories of economics may seem to be different, they are in fact interdependent to each other since they have numerous related matters amongst them. An example is instances of rising inflation (macroeconomics) which results in the increase of the cost of raw materials for manufacturing industries, and hence influence the price of the finished product charged to the individual consumers. In spite of all the above, the fields of microeconomics and macroeconomics both are vital important tools in the finance profession and are better studied mutually to grasp the mechanism of operations of different companies in getting returns and eventually, how the whole economy is handled and sustained by the various key players. In analyzing economic situations, microeconomics employs the bottom-up approach while macroeconomics employs the top-down approach (Science Daily, 2009, para. 4)

The depiction of microeconomics phenomena are in our daily lives. For example, a single mother decides to cut on her expenses by downsizing from an expensive house to a less expensive one based on the current escalating price of gas or a firm’s decision to increase the price of a farm equipment to enable it to compensate for its wholesale price increase that has been incurred from the suppliers.

Macroeconomics phenomena deal with matters of national interest (Mankiw, 1997). For example, the unemployment level in the United States is historically rising due to impacts of recession. The availability of disposable income has also declined; therefore, consumers are spending less of their money in routine purchases. Companies then embark on cost cutting measures, for example relieving workers off their duties, to reduce their expenses that eventually lead to rise of unemployment rates. If consumers do not spend money, the growth of industries deteriorates and the nation’s economy halts, ultimately the economic growth of the nation is seriously impaired.

A remarkable microeconomic decision I have made at work is to put all the electric appliances off or to put them under low consumption of power when I am not using them. This has dramatically saved the company’s expenses by reducing the electric bills by up to 10%. I also avoid unnecessary telephone conversations. The factors that contribute towards making this vital decision is due to the fact that our company has been embarking on cost-cutting measures that are aimed to ensure its financial stability since it has been hit hard by recession and the company’s returns did drop drastically in the last quarter. Some of my colleagues at the place of work have embraced this wise decision and some of us have gotten appraisals due to this decision taken.

Conclusion

A macroeconomic phenomenon that has influenced a personal decision of my own is the unpredictable national interest rates in the real estate industry. I had well laid down plans to do business in the real estate industry by early this year. However, after careful evaluation of the current fluctuating interest rates due to the uncertainties we are experiencing as a nation, I made a decision to wait and behold the proceedings by the lenders and the Federal Reserve if by any means they will increase or decrease the interest rate in the coming years. In the end, I will embark on achieving my dream of engaging in real estate industry, but as of now, it is better to wait and see before making the final move.

Reference

Blinder, A., & Baumol ,W. (2009). Macroeconomics: Principles and Policy. Ohio: Cengage Learning, Inc.

Hoover, K. (2001). The methodology of empirical macroeconomics. Cambridge: Cambridge University Press.

Mankiw, G. (1997). Principles of microeconomics. London: Ted Buchholz & George Provol

Pindyck, S., & Rubinfeld, D. (2005). Microeconomics. Beijing: Qinghua da xue chu ban she.

Science Daily. (2009). Microeconomics. Web.

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