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By the end of this section, you will be able to:

  • Describe microeconomics
  • Describe macroeconomics
  • Contrast monetary policy and fiscal policy

Economics is concerned with the well-being of all people, including those with jobs and those without jobs, as well as those with high incomes and those with low incomes. Economics acknowledges that production of useful goods and services can create problems of environmental pollution. It explores the question of how investing in education helps to develop workers’ skills. It probes questions like how to tell when big businesses or big labor unions are operating in a way that benefits society as a whole and when they are operating in a way that benefits their owners or members at the expense of others. It looks at how government spending, taxes, and regulations affect decisions about production and consumption.

It should be clear by now that economics covers a lot of ground. That ground can be divided into two parts: Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses; Macroeconomics looks at the economy as a whole. It focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports. Microeconomics and macroeconomics are not separate subjects, but rather complementary perspectives on the overall subject of the economy.

To understand why both microeconomic and macroeconomic perspectives are useful, consider the problem of studying a biological ecosystem like a lake. One person who sets out to study the lake might focus on specific topics: certain kinds of algae or plant life; the characteristics of particular fish or snails; or the trees surrounding the lake. Another person might take an overall view and instead consider the entire ecosystem of the lake from top to bottom; what eats what, how the system stays in a rough balance, and what environmental stresses affect this balance. Both approaches are useful, and both examine the same lake, but the viewpoints are different. In a similar way, both microeconomics and macroeconomics study the same economy, but each has a different viewpoint.

Whether you are looking at lakes or economics, the micro and the macro insights should blend with each other. In studying a lake, the micro insights about particular plants and animals help to understand the overall food chain, while the macro insights about the overall food chain help to explain the environment in which individual plants and animals live.

In economics, the micro decisions of individual businesses are influenced by whether the macroeconomy is healthy; for example, firms will be more likely to hire workers if the overall economy is growing. In turn, the performance of the macroeconomy ultimately depends on the microeconomic decisions made by individual households and businesses.

Microeconomics

What determines how households and individuals spend their budgets? What combination of goods and services will best fit their needs and wants, given the budget they have to spend? How do people decide whether to work, and if so, whether to work full time or part time? How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means?

What determines the products, and how many of each, a firm will produce and sell? What determines what prices a firm will charge? What determines how a firm will produce its products? What determines how many workers it will hire? How will a firm finance its business? When will a firm decide to expand, downsize, or even close? In the microeconomic part of this book, we will learn about the theory of consumer behavior and the theory of the firm.

Macroeconomics

What determines the level of economic activity in a society? In other words, what determines how many goods and services a nation actually produces? What determines how many jobs are available in an economy? What determines a nation’s standard of living? What causes the economy to speed up or slow down? What causes firms to hire more workers or to lay workers off? Finally, what causes the economy to grow over the long term?

An economy's macroeconomic health can be defined by a number of goals: growth in the standard of living, low unemployment, and low inflation, to name the most important. How can macroeconomic policy be used to pursue these goals? Monetary policy , which involves policies that affect bank lending, interest rates, and financial capital markets, is conducted by a nation’s central bank. For the United States, this is the Federal Reserve. Fiscal policy , which involves government spending and taxes, is determined by a nation’s legislative body. For the United States, this is the Congress and the executive branch, which originates the federal budget. These are the main tools the government has to work with. Americans tend to expect that government can fix whatever economic problems we encounter, but to what extent is that expectation realistic? These are just some of the issues that will be explored in the macroeconomic chapters of this book.

Key concepts and summary

Microeconomics and macroeconomics are two different perspectives on the economy. The microeconomic perspective focuses on parts of the economy: individuals, firms, and industries. The macroeconomic perspective looks at the economy as a whole, focusing on goals like growth in the standard of living, unemployment, and inflation. Macroeconomics has two types of policies for pursuing these goals: monetary policy and fiscal policy.

Questions & Answers

why is the marginal curve u shaped
jake Reply
which of marginal curve?
begyere
marginal cost curve
jake
what is demand function
uju Reply
demand function is the mathematical representation of price and quantity demanded of goods and services at various prices at a given time .
King
Demand function is an equation which shows the mathematical relationship between the quantity demanded of a good and the values of the various determinants of demand.
Bon
why would division of labour without trade not work
Frederick Reply
as far there is an output as a goal... trade can't be exempted... because the sole reason for division of labour is for an effective and efficient output or outcome.. with such exchange trade has taken place. .
Agha-Aiguokhian
Please what is paradox of value
rakia
what is the features of monopoly market? how it is different from monopolistic market?
alisha
how does scarcity described as the efficient byway to allocate resources in a free market?
God Reply
scarcity gives or births a rational thinking to an individual or state economy in the distribution of revenue or income to the right channels of their ends... assuming the market has the features of a free market (free entry and exit, close substitutes, market price control etc)
Agha-Aiguokhian
wath is the meaning the macro economics
Jimcaale Reply
What is the way out of Scarcity
Samuel
a state referenced economic study, the manner or behavioural pattern of a state choice in making economic decisions in satisfying their ends
Agha-Aiguokhian
Thanks brother
Samuel
what is macro economics
Balogun
is the study of a national economy as a whole
Rhoda
thanks
Balogun
what is micro economics
Balogun
micro is not the study of the entire economy as a whole. that is macro economics.
Brock
micro focuses more on decisions that individuals and firms make but also uses examples of countries regarding production.
Brock
I think is why some people get mixed up.
Brock
thanks a lot
Balogun
yes ,I think that is right
rene
how would you use budget constraints to explain trade off?
begyere
what is the difference between wants and needs as in economics
rene
wants may be unlimited but needs have the limit on the base of effort to pay.
Dambar
who n who is d founder of economic. txn
Ojo
adam smith is the founder of modern economics but previous than we can read ununified economic thought of kautilya and others.
Dambar
when total utility is constant, marginal utility do what?
rasheed Reply
Why is it that whenever I ask a question no one hears me out
Dominic
😊😊
Konadu
This is deals with only 1producer 1producer 1consumer
Motasay Reply
Oligopoly
Gh
thanks for you answer
Qaasim
With two buyers n sellers
Motasay
nothing only I study
Qaasim
still oligopoly That is when there is a limited buyer and seller in the industry. There are no perfectly elastic market entry, that is for both the price taker and the seller
Gh
thanks for your advice
Qaasim
welcomed bro
Gh
we can ask our doubt also isn't
Rohit
Yea you can as well
Gh
Like "beauty opportunity cost lies in the eyes of the beholder"discuss with practical examples
Dominic
Criticism of scarcity definition
No Reply
life is all about scarcity. there is a big reason behind that
Hassan
tell me the whole
No
as we are Muslims
Hassan
so what
No
we believe that our Allah. the God of Universe is Examining each and every one on the planet this Scarcity. the only place there is no scarcity is Aakhiro Doomsday
Hassan
i want Explanation ?
No
theory
No
You have came back our book of Quran
Hassan
Make some of our basic needs not available. For example like if we need a particular drugs to cure a virus ohh disease because if the scarcity of it it may lead to death
Motasay
what men gdb
Jimcaale Reply
with men government demand price
Jimcaale
how to draw demand curve
Michael Reply
What are the distinction between trade off and opportunity cost?
Eric Reply
what is monopoly
Mary Reply
What are the sources of monopoly
Mary
Sources of Monopoly Power Monopoly power is influenced by the following factors: Barriers to entry Number of competitors Advertising Degree of product differentiation The larger and more expensive the barriers to entry the greater the monopoly power The smaller the number of competitors in th
edward
monopoly occurs when specific enterprise supplies goods and controls the market.
sade
i think the sources of monopoly are barriers to enrty and product differentiation.
sade
Monopoly is a market structure characterized by a single seller, selling a unique product in the market in which s/he faces no competition, as s/he is the sole seller of goods with no close substitute.
edward
Monopoly is a market structure where the production of goods and services coupled with price determination of such commodities are left in the hands of a sole producer. Such factors are; Perfectly inelastic competition, High market barricade, High cost of raw materials,
Gh
what is price discrimination monopoly
sandra Reply
Charging different sets of consumers different prirces for the same good or service, for reasons not involved in cost of production. There are 3 degrees of price discrimination.
Darren
what are the 3 degree
obed
hello
Oparaugo
What up guys
Divine
what are four sources of monopoly
dora Reply
examples of what cause demand and supply to shift to the left.
Verte Reply
hello
Konadu
hi
Yaman
how are you
Yaman
are you fine
Yaman
hii
Liya
Why is there a trade off between inflation and employment? Give a situation to clear it up please
Kurt

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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