What are microeconomics and macroeconomics?

Microeconomics and macroeconomics are two divisions of economic theory, the first deals with the economic activity as a whole and the second of the individuals and their decisions.

Then a very brief introduction to these two extensive branches of study of economic science, which by their breadth have deserved an immense number of publications, here only try to present a definition and how they relate.

First a simple definition of economics:

Microeconomics

It Is called Microeconomics to study the way in which individuals make their decisions and how these decisions influence each other. (Krugman, Olney and Wells, p. 3)

Microeconomics studies how a person, company or family make their decisions every day and what these decisions bring as a consequence, from an economic point of view. (Sow, p. 17)

Microeconomics focuses on the analysis of the behavior of economic units, such as families or consumers, and companies. It Also studies the markets where claimants and suppliers of goods and services operate.

Although It is considered that the microeconomics originated with the theories of Adam Smith, in the EIGHTEENTH Century, only formalized its existence towards the end of the NINETEENTH Century and the beginning of the TWENTIETH Century with the emergence of the neoclassical school of the economy.

The Key concepts of microeconomics are:

Individuals or families and how to determine their demand for goods and services.
Companies and their production of goods and services, that is, the offer.
Markets and their way of relating supply and demand, i.e. market theory.
Microeconomics explains how supply and demand interaction determine the prices of each good, the level of wages and the profit margin. However, it does not solve two problems inherent to its internal logic, firstly, the relationship between the partial balance and the general equilibrium, if in the markets there are substitute goods and the changes in the demand result in changes in the costs of production , that is to say, in the offer. And, secondly, the balance of the firm in the long term under the assumption that this operates with a homogeneous production function of grade One, that is, with constant yields to scale.

Microeconomics, as a vision of the economy from the bottom up, constitutes the basis of any branch of the economy.

Macroeconomics

The Macroeconomics seeks to respond to the behavior and the way in which the whole group decides, that is, all the companies, all the families, all the organizations, as well as the way in which these decisions affect the decisions of the others involved. (Sow, p. 18)

Macroeconomics studies the growth and fluctuations of a country’s economy from a broad perspective, that is, a perspective that is not complicated in too many details about a particular sector or business. Modern macroeconomics is based on microeconomics, which studies the individual decisions of commercial and family companies and their interaction in the market. Macro-economists explicitly recognize that global trends in the economy are the result of millions of individual decisions. While they do not intend to study each of those decisions, they are clear that their theories must be consistent with the behavior of the millions of families and companies that make up the economy. (Larrain & Sachs, pp. 3 & 4)

Macroeconomics was born in the EIGHTEENTH and NINETEENTH Centuries by the theories of Smith, Ricardo and Say, but it is only until the 1930s of the last century, with the studies and publications of Keynes, which Originina modern macroeconomics.

Macroeconomics analyses economic processes from perspectives of a broad aggregation of economic factors and behaviors, national and regional dimensions. Macroeconomics defines, therefore, in its theoretical and conceptual context, hypothetical approaches developing concepts, models and instruments that contemplate economic processes under highly aggregated magnitudes that seek an explanation for the great Phenomena of the economy such as unemployment, inflation, economic growth, investment, exports, imports, etc. The Macroeconomics, in order to analyze within its economic system the behaviors that are integrated within these macro-magnitudes, develops the microeconomics as one of its key instruments that give answer and interpret, at the same time, the The behaviors of productive units, companies, public institutions, domestic economies, in order to estimate the effects to integrate them into this explanation that requires the construction of macroeconomic design. (Garcia, p. 109)

One of the proposals, of the theorists of the economy, to understand the difference between macroeconomics and microeconomics is to study the types of problems that each one approaches, Díaz-Giménez (p. 39) raises this:

The questions posed by Microeconomics have to do with the decisions of individuals and individual companies. Some examples of these questions are the following: How do the hiring decisions of a company change if the labour law changes?, how does the computer market affect the introduction of a titanium blue machine, faster and easier to Handle than the others, and a ten percent cheaper than the competitors ‘ similar machines?

The questions posed by macroeconomics have to do with problems that affect all people who live in a particular country, or even around the world. Some examples of the questions posed by macroeconomics are as follows: Why do economies grow faster than others?, why do economies suffer recurrent recessions?, why are there people who want to work and do not find Work, why do the prices of almost all goods tend to increase?

Case and Fair (p. 8) expose the difference in microeconomics and macroeconomic approaches as follows:

While Microeconomics focuses on prices of individual products and relative prices, macroeconomics examines the general level of prices and the speed (or slowness) with which they rise (or fall). Microeconomics wonders how many people will be hired (or stopped) this year in a certain industry or in a certain geographic area, as well as the factors that determine the amount of labor that a company or industry will hire. Macroeconomics deal with aggregate employment and unemployment: how many jobs exist in the economy as a whole and how many people who are willing to work will not be able to find employment.