What will your family buy this month, and why are prices rising across the country? Both questions belong to economics, yet to two different branches. One simple question tells you which is which.
1. Two branches
The two main branches of economics are microeconomics and macroeconomics.
Microeconomics studies ‘small’ matters: the individual decision making units. Macroeconomics studies ‘large’ or aggregate matters: the aggregate economic behaviour of the whole economy.
2. What falls where
Start from one person and pull back until the whole country is in view. Where does micro end and macro begin?
zoom outsmall to large
From one unit to the whole
Microeconomics analyses the behaviour of an individual, a household or a firm, or the market for a single commodity. Macroeconomics analyses total consumption, total investment, national production, unemployment, government income and spending, inflation and international trade. Sort them yourself.
sort themOne unit or the whole?
Micro or macro?
Pick up a chip, then drop it in a box. One question: is this about a single unit, or the whole economy?
Right. Next one.
Not yet. Ask: is this one unit's behaviour, or a total across everyone?
All in place. A household, a firm and the market for one commodity are micro. Unemployment, inflation, national production and total investment are macro.
Now set the two branches side by side.
gridTap a cell
Two branches compared
micro
macro
scale
small
large
example
a firm's behaviour
total consumption
Microeconomics studies small matters: the individual decision making units.
Macroeconomics studies large or aggregate matters.
The behaviour of a single firm is a microeconomic matter.
Total consumption is a macroeconomic matter, because it adds up everyone's consumption.
3. Check yourself
Three questions in the exam's style.
check yourselfpick one answer
Question 1
Which of the following is included in macroeconomics?
The behaviour of a household is a microeconomics topic.
The behaviour of a farm (firm) is a microeconomics topic.
The market for one commodity is a microeconomics topic.
Right. Unemployment concerns the whole economy, so it belongs to macroeconomics.
In the second, ask which one is about the whole.
check yourselfpick one answer
Question 2
Macroeconomics discusses-
i. Total investment ii. The behaviour of a firm iii. National production
Statement ii does not match the book: The behaviour of a firm is a microeconomics topic.
Right. Macroeconomics covers total investment and national production; the behaviour of a firm is microeconomics.
Statement ii does not match the book: The behaviour of a firm is a microeconomics topic.
Statement ii does not match the book: The behaviour of a firm is a microeconomics topic.
In the last, match each branch to its kind.
check yourselfpick one answer
Question 3
Whose behaviour is analysed in microeconomics?
This option does not match the book. Microeconomics analyses an individual, a household, a firm or one commodity market.
This option does not match the book. Microeconomics analyses an individual, a household, a firm or one commodity market.
Right. Microeconomics analyses an individual, a household, a firm or one commodity market.
This option does not match the book. Microeconomics analyses an individual, a household, a firm or one commodity market.
The whole note on five cards.
cut from the notetap to turn over
Five cards
QuestionWhich branch studies 'small' matters, the individual decision making units?
AnswerMicroeconomics
QuestionWhich branch studies 'large' or aggregate matters?
AnswerMacroeconomics
QuestionWhich units are analysed in microeconomics?
AnswerAn individual, a household, a firm and the market for one commodity
QuestionAre unemployment and inflation micro or macro topics?
AnswerMacro, because they describe the whole economy
QuestionWhich matter of government is analysed in macroeconomics?