Microeconomics is defined as the learning of decisions made either by a person or a business concerning the use of resources, and the prices set on services and goods. This includes regulations given by the government and taxes imposed too. Microeconomics involves the forces of supply and demand in the economy, which is used to set prices in a given economy. For example, a company can use microeconomics to establish how it can increase production, and still maintain competitive prices (Mankiw, 2004). Macroeconomics is involved with the trend of the economy at large and not individual companies. It deals with the performance of a whole industry and the economy of a given country. It involves the Gross National Product and how some factors can affect it including unemployment, price levels, rate of growth, and national income. For example, macroeconomics would deal with identifying how a change in net exports can cause a significant change in the capital account of a country (Bishop 2009).
The two economics terms have their differences, but they are also interdependent and they have some overlapping issues. The main difference is that microeconomics use a bottoms-up approach on the economy while macroeconomics uses a top-down approach. Microeconomics mainly focuses on the shift in supply and demand, and the factors affecting them to set price levels. However, macroeconomics is vaster and mainly focuses on improving the economic growth, and establishing factors that affect the national income. Microeconomics affects the process of decision making among the people, and small business enterprises. It determines the way people spend on purchases, and how prices are set by small businesses and companies. Macroeconomics focuses on the bigger industries and trends in a country’s economy. It is affected by the unemployment rate of a country and can determine the Gross Domestic Produce as well as the price indices (Jain 2004). In order to understand the administration and sustenance of the economic system, the two terms have to be learnt.
In the day to day activities, we make microeconomic decisions especially to prioritize what we purchase based on the price. Last month, I was searching for a phone with good features, especially in entertainment. Most of the phones on sale were expensive for me for I had saved some cash from my pocket money. I could not afford a phone with all the functionalities that I wanted, and so I had to settle for a phone closest to the one I wanted. Considering my resources, the phone was the best choice since I wanted a new phone and the one I got was relatively good.
From the year 2008, America faced an economic crisis that affected the whole country, and was felt by the whole world. It led to a massive unemployment rate and the closure of some industries, which negatively affected the economy. This was a macroeconomic phenomenon and some of my family members were lost their jobs in the process. We could no longer purchase things as we used to, and we had to cut on the spending, especially on luxury goods. As the economic crisis went to the extremes, I personally felt the effect especially through the limiting of the things I could purchase.
Both microeconomics and macroeconomics are tools that are indispensable in every economy, for its proper sustenance.