Macro vs Micro Economics: A Guide
Reviewed by Jacob Imm
May 20, 2022
Macro vs Micro Economics: A Guide
Are you interested in finance, international trade, or the stock market? To fully understand the principles that underlie those and other fields, you need to be well versed in both macro and micro economics. These are distinct but related economic areas that overlap and interlock in several ways.
Understanding macro vs. micro economics and their relationship can be confusing, even if you’ve taken AP microeconomics or AP macroeconomics in high school. It can be helpful to look at their relationship by comparing economics to biology. Biologists study the way an organism as a whole functions, right? But they also look at the organism’s activity at the cellular level. Economics is similar in that it considers the entire economy (macro), as well as the small, individual decisions that feed into that larger economy (micro).
This article will help you get a better grasp of these economic principles. “Once you understand the difference between micro and macro economics, you’ll probably find that you gravitate naturally toward one or the other,” says Gwendolyn Tedeschi, professor and chair of economics at North Central College. “But it’s important to understand both.”
What is micro economics?
Put simply, microeconomics deals with the financial decisions that are made by individual consumers and relatively small groups, such as families or companies. “Micro is usually taught first in the college sequence because every macro discussion can be broken down into microeconomic decision makers,” explains Ryan Decker, assistant professor of economics and director of the Center for Financial Literacy at North Central College. “Whenever we talk about the actions countries should take, or trade deals or the money supply, each one of those issues is based on the independent decisions of consumers and producers.”
If you study micro economics, you’ll look at the issues and concerns (like taxes or supply and demand) that go into individuals’ decision-making processes. Then you’ll identify the ways their decisions help influence the price of certain items. You’ll start by looking at small details and work your way up to the bigger picture.
Key issues in microeconomics
A few of the microeconomic questions you might study include:
- How do families manage their household budgets? How do they decide what to buy and do?
- How do people make decisions about their employment and professional lives? How do they decide what kinds of jobs to seek out and accept? When do they decide not to work – and what kind of opportunity cost is incurred with unemployment?
- How and why do companies and businesses produce goods? What price levels do they set for them, and how? Who do they hire, and why?
- What does it take for companies and businesses to open, grow or shrink, or close?
- What is the role of government in individual investment decisions and other decision-making?
Topics you may cover in microeconomics courses
- Individual decision making
- How companies compete with one another
- The impact of taxes and price controls on markets
- Labor economics
- Industrial structure and public policy (how companies operate and the role of government)
- Sports economics
What is macro economics?
Macroeconomics deals with the decisions of larger groups, typically nations, governments, and industries. You’ll look at things like rates of inflation, monetary policy, and governmental efforts to stimulate or suppress economic growth and economic activity. In other words, macro economics is the inverse of micro economics; it starts with the big picture and works down.
Key issues of macroeconomics
A few of the macroeconomic questions you might study include:
- Given a nation's limited resources, how is it able to offer certain goods and services?
- What goes into the creation of jobs in a given economy?
- How is a nation’s standard of living determined?
- What causes a country’s economy to strengthen or weaken?
- What causes labor gluts or shortages?
- How can an economy be stimulated to grow over time?
- How does a country set its inflation rate?
- In what ways does fiscal policy affect other sectors?
Topics you may cover in macroeconomics courses
- Aggregate economic variables, including aggregate demand
- Business cycle
- Economic development
- General price level
- Gross domestic product
- Gross national product
- International economics
- Money and banking
- Unemployment rate
The connection between micro and macro economics
Micro and macro economics are two sides of the same coin. The decisions made in one realm intimately affect the other. “Students need both micro and macro to fully understand, and appreciate, the world in which they live,” says Decker. “Now more than ever, we live in a globally connected world.”
Careers in economics
When thinking about what an economist is, most people think economists contribute primarily to government, business, and financial services sectors. That makes sense since economics programs typically focus on developing skills that are highly valued in those areas.
But when it comes to finding a job with an economics degree, that’s just the tip of the iceberg. Why? Because the field is not just about learning about economic theory and economic trends. It’s also about critical thinking, which is in demand in every field. And if you also know how to analyze data, then you’re pretty close to holding a golden ticket. If you’re wondering if economics is a good major to study, consider the career you’re looking to have.
“In high school, there are straight answers to most of the questions students are asked. But that’s not the case in college and in real life. That’s when critical thinking becomes really important – and that’s what we teach in economics. It can be a struggle for students at first, but once the lightbulbs start flashing on – that’s great to see,” says Tedeschi.
That’s one reason why graduate school can also be a great option – and not only in finance and economics. “Our students also do remarkably well on the LSATs [law school admission test] and in law school,” notes Tedeschi, “because those programs look for the same kind of critical thinking skills.”
“Economics is a way of thinking that can applied to anything,” Decker says. “Every employer is looking for people who think critically, and that’s what you do in economics. We study why people make the decisions they make. And that’s applicable to every field, because every field is operated by people who make decisions.”
As an economist, you’ll also master valuable technical skills. “There’s so much real-world data that's accessible to students today,” says Tedeschi. “Figures related to GDP [gross domestic product], inflation, national income … it’s all out there for them to download and graph. They can conduct economic analysis using real figures. Those are amazing skills, and extremely marketable.”
“When it comes to finding a job as an economics major, the world really is your oyster,” Tedeschi continues. In fact, the range of professional options can be daunting – a good problem to have! That’s why she urges her students to try out various options by pursuing internships. “You’ll find out what you enjoy, and what you don’t enjoy,” she says. “Remember, it’s okay to switch gears. You aren’t obligated to stay on the same path you started down. You have choices.”
Jacob Imm is the assistant director of the North Central College Office of Marketing and Communications. He has 12 years of collegiate communications experience and has worked with hundreds of college students. He has a bachelor’s degree from the University of Notre Dame and a master’s degree from Northern Illinois University.