Microeconomics studies individual consumers and firms, while macroeconomics studies the whole economy, including growth, inflation, and unemployment.
Microeconomics
Studies individual consumers, businesses and markets. Topics: supply and demand, pricing, costs and competition.
Macroeconomics
Studies the economy as a whole. Topics: GDP, inflation, unemployment, interest rates and government policy.
Example
Micro: why a gas station sets a price. Macro: why national gas prices rise.
Thinkers
Adam Smith (micro), John Maynard Keynes (macro).
Link
Macro trends arise from micro behavior.
Time frames
Microeconomics typically studies short run market decisions, such as how a firm sets prices today. Macroeconomics examines long-term growth and short-term fluctuations in output and employment.
Models used
- Micro: supply and demand curves, cost curves, utility maximization.
- Macro: aggregate demand and aggregate supply, the IS-LM model, Phillips curve, Solow growth model.
Measures
Micro measures include prices, quantities, elasticities and market shares. Macro measures include GDP, the unemployment rate (3.7% to 4% in recent US data), inflation (CPI), and interest rates.
Policy
Micro policy: antitrust law, minimum wage, taxes on specific goods and subsidies. Macro policy: central bank interest rate decisions and government spending or taxation to manage recession or inflation.
Example in the news
When a gasoline price rises, micro analysis studies how consumers switch to other transport. A macro view looks at how higher energy costs contribute to inflation and slower growth.
Key episodes
The Great Depression of the 1930s led to the development of Keynesian macroeconomics. The stagflation of the 1970s challenged it. The 2008 financial crisis and COVID-19 recession prompted new policies.
Thinkers
Micro: Adam Smith (The Wealth of Nations, 1776), Alfred Marshall, Paul Samuelson. Macro: John Maynard Keynes (The General Theory, 1936), Milton Friedman, Robert Lucas.
Nobel Prizes
Economists are awarded the Sveriges Riksbank Prize in Economic Sciences. Recent winners include Claudia Goldin (2023) for work on women’s labor market outcomes.
Study
Introductory economics courses commonly split into micro and macro.
Core concepts
Microeconomics studies individual decisions of households and firms, price formation, supply and demand and market structure. Macroeconomics studies aggregates such as gross domestic product, unemployment, inflation and interest rates. Central banks use monetary policy, while governments use fiscal policy, meaning taxes and spending. Keynes’s General Theory of 1936 helped establish modern macroeconomics after the Great Depression.
Key indicators
GDP measures the total value of goods and services produced, unemployment rate measures the share of the labor force without jobs, and the Consumer Price Index tracks changes in prices. The US Federal Reserve targets 2 percent inflation over the longer run. Micro topics include elasticity, opportunity cost, marginal utility and game theory, while macro topics include business cycles, money supply and exchange rates.
Based on data from the Bureau of Economic Analysis, the Federal Reserve and the Bureau of Labor Statistics
