Differences Between Micro & Macro (Cambridge (CIE) O Level Economics)

Revision Note

Microeconomics and Macroeconomics

Some of the Differences Between Micro- and Macroeconomics

Microeconomics

Macroeconomics

Single market e.g. milk

Entire economy e.g. singapore

Price of a good/service

Average price levels in an economy (inflation/deflation)

Individual/market demand

Total demand in an economy

Individual firm/market supply

Total supply in an economy

Government intervention in a market e.g. cigarettes

Government intervention in the economy e.g. income tax

Reasons for differences in workers wages

Unemployment and minimum wages

  • Microeconomics is the study of individual markets and sections of the economy, rather than the economy as a whole

    • It examines the different choices individuals, households and firms

    • It examines what factors influence their choices

    • It examines how their decisions affect the price, demand and supply of goods/services in a market

    • It examines how Governments influence consumption and production 

  • Macroeconomics is the study of economic behaviour and decision making in the entire economy, rather than just an individual market

    • It examines the role of the government in achieving economic growth and human development through the implementation of specific government policies (fiscal, monetary and supply-side)

    • It examines the role of the government in achieving price stability, low unemployment and a stable Current Account balance on the Balance of Payments account

    • It examines the interaction of the economy with the rest of the world through international trade

Decision Makers in Micro and Macro

Decision Makers and Their Choices in Microeconomics

Decision Maker

Choices They Make

Consumers

  • Which combination of goods/services do they value the most?

  • How to respond to changes in markets they consume in

  • How much money to save, spend or borrow

Firms

  • Which combination of goods or services to supply

  • How to best produce goods/services in order to meet their objective (usually profit maximisation)

  • How to respond to changing market conditions

Government

  • Which policies will be most effective in addressing specific market failures?

  • Which industries/markets are essential and require government support?


Decision Makers and Their Choices in Macroeconomics

Decision Maker

Choices They Make

Consumers

  • How to best respond to changing macroeconomic conditions, such as recessions or interest rate rises

Firms

  • How to best respond to changing macroeconomic conditions, such as recessions, interest rate rises or a low supply of labour

  • Whether to sell their goods/services locally, nationally or internationally

Government

  • Determining the best combination of policies that will help them meet all of their macroeconomic aims

Multinational corporations (MNCs)

  • Which countries to invest in

  • How to best develop international advantages

  • How to engage with the government and local workforce in a way that maximises profit without harming the brand image

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