Micro & Macro Economics

Published on February 18, 2017
Micro & Macroeconomics are the fundamental tools for any finance professional and should be studied together because they are
* Interdependent.
* Issues of both are overlapped.

Micro Economics:

  • It is the study of economics at an individual, particular group or particular company level.
  • Focus on small scales economic issues like Production costs, market prices, Supply and demand of goods and services, scarce resources, opportunity cost., which affect individuals and companies.
  • Price theory is generally included under Microeconomics.
  • In Microeconomics, Utility is the useful tool.
➣It refers to the degree of removed discomfort or perceived satisfaction that an individual receives from an economic act.
➣Ordinal utility – the ranking of utility.
➣Cardinal utility – refers measurable, directly comparable levels of utility.

  • Used to determine the methods of improvement for individual business entities.

Macro Economics:

  • John Maynard Keynes’s 1936 book, ‘The general theory of employment, Interest, and money’ laid the foundations of Macroeconomics.
  • It is the study of a national economy as the whole.
  • Deals with national production, national income and income level.
  • Focus on large-scale economic issues like unemployment, inflation, GDP of an economy which affects the nation’s economy.
  • It operates with key assumptions based on observable human behaviour. It assumes that resources are scarce and therefore can be assigned monetary value and that present consumption is preferred to future consumption.
  • It concerned with the overall performance of the economy.
  • Used to determine needs for improvement in overall performance of the economy, standard of living etc.

How Government policy changes Micro and Macro Economic factors:

  • Government policies alter the inputs and incentives of individuals, which affect Microeconomics.
  • Tax policy, fiscal policy, regulations, tariffs, subsidies, legal tender laws, licensing and public-private partnerships are the forms of government policy that affect an individual.
  • For example:
➣Government provides subsidies to help farmers to increase their yields.
➣Government put taxes on some products to decrease their usage.
These two things affect the individual’s economics positively and negatively.
  • The price of costs, services and commodities which affect individuals raises inflation. If the effects of microeconomics cause inflation and the high cost of living which is the issue of macroeconomics study.
  • Policies, economic decision and regulations enacted by the government can have a major impact on the overall economy.
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