essay about microeconomics and macroeconomics

Difference between microeconomics and macroeconomics

Readers Question: Could you differentiate between micro economics and macro economics?

• Microeconomics is the study of particular markets, and segments of the economy. It looks at issues such as consumer behaviour, individual labour markets, and the theory of firms.
• Macro economics is the study of the whole economy. It looks at ‘aggregate’ variables, such as aggregate demand, national output and inflation.

Micro economics involves

• Supply and demand in individual markets.
• Individual consumer behaviour. e.g. Consumer choice theory
• Individual labour markets – e.g. demand for labour, wage determination.
• Externalities arising from production and consumption. e.g. Externalities

Macro economics involves

• Monetary / fiscal policy. e.g. what effect does interest rates have on the whole economy?
• Reasons for inflation and unemployment.
• Economic growth
• International trade and globalisation
• Reasons for differences in living standards and economic growth between countries.
• Government borrowing

Moving from micro to macro

If we look at a simple supply and demand diagram for motor cars. Microeconomics is concerned with issues such as the impact of an increase in demand for cars.

This micro economic analysis shows that the increased demand leads to higher price and higher quantity.

Macro economic analysis

This looks at all goods and services produced in the economy.

• The macro diagram is looking at real GDP (which is the total amount of output produced in the economy) instead of quantity.
• Instead of the price of a good, we are looking at the overall price level (PL) for the economy. Inflation measures the annual % change in the aggregate price level.
• Instead of just looking at individual demand for cars, we are looking at aggregate demand (AD) – total demand in the economy.
• Macro diagrams are based on the same principles as micro diagrams; we just look at Real GDP rather than quantity and Inflation rather than Price Level (PL)

The main differences between micro and macro economics

• Small segment of economy vs whole aggregate economy.
• Microeconomics works on the principle that markets soon create equilibrium. In macro economics, the economy may be in a state of disequilibrium (boom or recession) for a longer period.
• There is little debate about the basic principles of micro-economics. Macro economics is more contentious. There are different schools of macro economics offering different explanations (e.g. Keynesian, Monetarist, Austrian, Real Business cycle e.t.c).
• Macro economics places greater emphasis on empirical data and trying to explain it. Micro economics tends to work from theory first – though this is not always the case.

Differences between microeconomics and macroeconomics

The main difference is that micro looks at small segments and macro looks at the whole economy. But, there are other differences.

Equilibrium – Disequilibrium

Classical economic analysis assumes that markets return to equilibrium (S=D). If demand increases faster than supply, this causes price to rise, and firms respond by increasing supply. For a long time, it was assumed that the macro economy behaved in the same way as micro economic analysis. Before, the 1930s, there wasn’t really a separate branch of economics called macroeconomics.

Great Depression and birth of Macroeconomics

In the 1930s, economies were clearly not in equilibrium. There was high unemployment, output was below capacity, and there was a state of disequilibrium. Classical economics didn’t really have an explanation for this dis-equilibrium, which from a micro perspective, shouldn’t occur.

In 1936, J.M.Keynes produced his The General Theory of Employment, Interest and Money; this examined why the depression was lasting so long. It examined why we can be in a state of disequilibrium in the macro economy. Keynes observed that we could have a negative output gap (disequilibrium in the macro-economy) for a prolonged time. In other words, microeconomic principles of markets clearing, didn’t necessarily apply to macro economics. Keynes wasn’t the only economist to investigate this new branch of economics. For example, Irving Fisher examined the role of debt deflation in explaining the great depression. But, Keynes’ theory was the most wide-ranging explanation and played a large role in creating the new branch of macro-economics.

Since 1936, macroeconomics developed as a separate strand within economics. There have been competing explanations for issues such as inflation, recessions and economic growth.

Similarities between microeconomics and macroeconomics

Although it is convenient to split up economics into two branches – microeconomics and macroeconomics, it is to some extent an artificial divide.

• Micro principles are used in macroeconomics. If you study the impact of devaluation, you are likely to use same economic principles, such as the elasticity of demand to changes in price.
• Micro effects macroeconomics and vice versa. If we see a rise in oil prices, this will have a significant impact on cost-push inflation. If technology reduces costs, this enables faster economic growth.
• Blurring of distinction. If house prices rise, this is a micro economic effect for the housing market. But, the housing market is so influential that it could also be considered a macro-economic variable, and will influence monetary policy.
• There have been efforts to use computer models of household behaviour to predict the impact on the macro economy.
• Summary of economics

External Links

• Micro and macro economics at IMF

Last updated 1 July, 2019.

45 thoughts on “Difference between microeconomics and macroeconomics”

WELL NOTED!!!

Understood!!!

Microeconomic issue impact on macroeconomics. How?

Define micro and macro eco defination in urdu or sindhi

Thank you for helping me understand

Thank you for helping me

Thanks alot

Very much understood

why micro economy is small

Because it only deals with individuals and households

Wow 😯😯 It is very well understood 🥰

Easy to understand

It is good..

Thanks you so much, it’s very well understood.

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1.3: Microeconomics and Macroeconomics

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Learning Objectives

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 considerable ground. We can divide that ground 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 lake's ecosystem 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 scrutinizing 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, macroeconomy's performance ultimately depends on the microeconomic decisions that individual households and businesses make.

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 the 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 microeconomics part of this book, we will learn about the theory of consumer behavior, the theory of the firm, how markets for labor and other resources work, and how markets sometimes fail to work properly.

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 them off? Finally, what causes the economy to grow over the long term?

We can determine an economy's macroeconomic health by examining a number of goals: growth in the standard of living, low unemployment, and low inflation, to name the most important. How can we use government macroeconomic policy to pursue these goals? A nation's central bank conducts monetary policy , which involves policies that affect bank lending, interest rates, and financial capital markets. For the United States, this is the Federal Reserve. A nation's legislative body determines fiscal policy , which involves government spending and taxes. For the United States, this is the Congress and the executive branch, which originates the federal budget. These are the government's main tools. 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 we will explore in the macroeconomic chapters of this book.

Difference between microeconomics and macroeconomics Compare & Contrast Essay

Introduction, difference between microeconomics and macroeconomics.

Economics is a process of making decision using scientific tools of research and analysis. This paper is a presentation of distinction between microeconomic and macroeconomics. These terms are critical in economics since they offer insight into economic discipline. Examples of each Distinctive difference between microeconomics and macroeconomics will be discussed in depth.

It will be fair to illustrate microeconomic decisions and factors that contributed to such a decision. Furthermore, macroeconomic event with its impact will be specified in the deliberation.

• Microeconomics

Microeconomics can be defined as economics that examines how persons allocate the minimum resource among the households and firms (Bade, 2001). The decisions made in the market regarding the purchase of specific goods and services affects directly or indirectly supply and demand chain. Such decisions also have an influence on the prices of products and ultimately the demand and supply.

We can note therefore that microeconomics deals with the aspects of prices and its efficiency in a market environment where decisions are made. Microeconomics revolves round production, consumption, and sale of goods and services (Colander, 2008). Some economic policies like change of taxes affect microeconomics of a country. If more tax is charged on market goods, then demand decreases. It is also in microeconomics that a market failure like monopoly is speculated.

Macroeconomics

Macroeconomics emphasizes on the bigger picture of the economy thus acquitting on how things in the world in terms of the structure, performance, behavior and decision making process of the whole economy.

Macroeconomics examines aggregates in the system such as gross domestic product, unemployment rates and price levels so as to gain insight into the working of an economy. Economist who have studied macroeconomics have developed models to explain the working relationship between national income, output, consumption, savings, investments, balance of payment and international finance (Blanchard, 2000).

While recognizing that microeconomics is a wide area of study, some of its special characteristic can be highlighted as: effort to understand the causes and effects of short run changes in national income and an effort to synthesize determinants of economic growth in the long run period of time.

National governments use macroeconomic models to develop economic policy and strategies for the business (Blanchard, 2000). In trying to avoid depression in an economy, policies are formulated to assist in stabilizing the government. Fiscal policies and monetary are instrument commonly used as a strategy to maintaining stability and continue with economic development and growth.

Example of each observable fact

An example of microeconomic dimension is the pricing strategy which affects demand and ultimately supply of a product to the market (Colander, 2008). If the price of a product is increased through taxes, quantity demanded would reduce while quantity supplied would increase.

The reason for this observation is that supplies are motivated by high prices to produce more while consumers shy away fro buying expensive commodities. This will distort the point of equilibrium in the market. It is the role of microeconomics to study the different aspects of the market and establish the relevant prices. On the other hand, macroeconomics specifies facet of national income, output, consumption, savings, investments, balance of payment and international finance.

Microeconomic decision and factors that contributed to such decision

A real life microeconomic decision is a reduction in the purchase of fuel following a rise in the price of crude oil in the world market. The skyrocketing price reduced the power of the buyer. A decision to reduce on purchase of fuel was also necessitated by inflation rates affecting consumer goods. There is a reason to meet basic wants along the Maslow hierarchy of needs. This factor contributed to a decision to cut down on demand for fuel.

Illustration of specific macroeconomic event and its impact

Fiscal policy involves increasing government expenditure and collections of revenue so as to jump start an economy (Snowdon & Vane, 2005). Expansionary fiscal policy has been employed by President Obama to deal with financial crisis. The government has to spend more on health, employment creation, tax incentive, and provision of security.

The net effect is a deficit financing. If a change in tax and government expenditure is done, its effect will be on such variables as aggregate demand, pattern of resource allocation and distribution of incomes (Snowdon & Vane, 2005). A more progressive tax bridges the gab between the haves and have not thus necessary in balancing income distribution in an economy.

There exist a distinct difference between microeconomics and macroeconomics both in its definition and functioning. Microeconomics examines scarce resource between competing wants in a household or a firm. A microeconomic decision regarding purchase of goods affects directly and indirectly the demand and supply.

Such decisions also have an influence on the prices of products on the other hand, macroeconomics deals with the economy as a whole while highlighting on policy instruments, national income, output, consumption, savings, investments, balance of payment and international finance. These are the features of an outward looking economy. The discussion also focused on illustration of both macroeconomics and microeconomic decisions.

Bade, R., & Parkin, M. (2001). Foundations of Microeconomics . London: Addison Wesley.

Blanchard, O. (2000). Macroeconomics . New Jersey: Prentice Hall.

Colander, D. (2008). Microeconomics. California: McGraw-Hill.

Snowdon, B., & Vane, H. (2005). Modern Macroeconomics: Its Origins, Development And Current State . Cheltenham: Edward Elgar Publishing.

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Module 2: Economic Environment

Microeconomics and macroeconomics, learning outcomes.

• Distinguish between macroeconomics and microeconomics

Economics is such a broad field of study that it is broken down into two subfields: microeconomics and macroeconomics. Microeconomics covers topics related to the actions of individual people or businesses within the economy, while macroeconomics examines the larger economy and broader issues, such as GDP, inflation, growth rates, and trade. Watch this video to learn about the distinction between the two perspectives.

You can  view the transcript for “Episode 4: Micro vs Macro” (opens in new window).

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, unemployment, inflation, and trade balance. Microeconomics and macroeconomics are not separate subjects, but are, 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 remains in balance, and what environmental stresses affect this balance. Both approaches are useful, and both researchers study 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 starting point, perspective, and focus.

Whether you are looking at lakes or economics, the micro and the macro insights should illuminate each other. In studying a lake, the “micro” insights about particular plants and animals help us 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 the health of the macroeconomy—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 budgets 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 text, 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 or nation?—that is, how many goods and services does it actually produce? 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 lay them off? Finally, what causes the economy to grow over the long term?

An economy’s macroeconomic health can be assessed by a number of standards or goals. The most important macroeconomic goals are the following:

• Growth in the standard of living
• Low unemployment
• Low inflation

Macroeconomic policy pursues these goals through monetary policy and fiscal policy:

• 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 establishes the federal budget.

To keep the differences between these policies straight, remember that the term monetary relates to money, and the term fiscal relates to government revenue or taxes.

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• Principles of Microeconomics Chapter 1.2. Authored by : OpenStax College. Provided by : Rice University. Located at : http://cnx.org/contents/[email protected]:4/Microeconomics . License : CC BY: Attribution . License Terms : Download for free at http://cnx.org/content/col11627/latest
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• Episode 4: Micro v Macro. Authored by : Dr. Mary J. McGlasson. Located at : https://youtu.be/w8tUIq7Blsg . License : CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

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Oct 18, 2019

Microeconomics and Macroeconomics: Understanding the Difference

Most people understand how physics is classified as a science, however, there might be some confusion when including economics in the same category. In fact, economics is a social science, as it shares the same qualitative and quantitative elements common to all social sciences. 1 Economics focuses on the manufacturing, distribution, and consumption of goods and services, and how people, organisations, governments, and nations choose to allocate resources in order to gain these goods and services. 2 As with the studies of all sciences, establishing different sections makes it easier to understand. Economics can be broken into two sections: microeconomics and macroeconomics. 3 Here we delve into these sections; their differences, how they affect each other, and their impact on business.

What is microeconomics?

Microeconomics can be defined as the study of decision-making behaviour of individuals, companies, and households with regards to the allocation of their resources. 4

Microeconomics strives to discover what factors contribute to peoples’ decisions, and what impact these choices have on the general market as far as price, demand, and supply of goods and services is concerned. It’s a ‘bottom-up’ approach with a focus on the basic elements that make up the economy’s three sectors (agriculture, manufacturing, and services/tertiary), such as land, entrepreneurship, and capital. 5 It aims to understand the pattern of wages, employment, and income, 6 as well as consumer behaviour, spending trends, wage-price behaviour, corporate policies, and how regulations impact on companies. 7 Microeconomics tries to determine decisions and resource allocation at an individual level, as well as explain what happens when certain conditions change.

To summarise, microeconomics determines to understand the following: 8

• How people and households spend their budgets
• What combination of products and services are the best fit for their needs and wants, in the context of their available budget
• How individuals decide whether or not to work, and if they choose to work, whether or not it will be full time or part time
• How people decide to save for the future, how much they choose to save, or whether they decide to go into debt
• How a business decides to produce and sell certain products, how it will produce it, how many of each it will sell, and for how much
• What causes them to decide how many workers it will hire
• How a firm will finance its business
• At what time a business will decide to expand, downsize, or even close

For example, microeconomics could use information from a company’s financial reports in order to determine how an organisation could maximise its production and output capacity, in order to lower prices and become more competitive.

What is macroeconomics?

Macroeconomics is the holistic study of the structure, performance, behaviour, and decision-making processes of an economy, at a national level. 9 Essentially, macroeconomics is a ‘top-down’ approach. 10 It seeks to understand changes in the nation’s Gross Domestic Product (GPD), inflation and inflation expectations, spending, receipts and borrowings at a governmental level (fiscal policies), unemployment, and monetary policy. This is done to interpret and know the state of the economy, so that policies can be formulated at a higher level, and macro research can be carried out for academic purposes.

Macroeconomics analyses entire industries and economies, rather than singular companies or individuals. 11 It seeks to answer questions such as, “What should the inflation rate be?” and, “What stimulates economic growth?”.

To summarise, macroeconomics strives to answer the following: 12

• Which factors determine how many goods and services a country can produce
• What determines the number of jobs available in an economy
• What determines a country’s standard of living
• What factors cause the economy to speed up or slow down
• What causes organisations to hire or fire more labour on a national scale
• What causes the economy to grow over the long term
• What the state of the nation’s economic health is, based on improvement in the standard of living, low unemployment, and low inflation

Macroeconomics vs microeconomics: the key differences

Microeconomics and macroeconomics both explore the same elements, but from different points of view. 13 The main differences between them are:

• Macroeconomics seeks to find a general perspective, at a national level, while microeconomics focuses on the individual’s perspective, at a consumer level. 14
• Even though supply and demand applies to both fields of economics, microeconomics is based on the trends of buyers and sellers, where macroeconomics focuses on the various cycles of an economy, such as short and long term debt cycle, and business cycles. 15

Macroeconomics vs microeconomics: the overlap

It is clear that macroeconomics does not exist in isolation, but rather is entwined with microeconomics, and works in tandem in order to be efficient. 15 Choices based on microeconomic factors, whether from individuals or businesses, can impact macroeconomics in the long run. Similarly, a national policy that involves microeconomics could affect how households and enterprises interact with their economy. For example, if the government raises the tax on a certain product (macroeconomics), an individual shop owner will have to increase the price, which will impact on the consumer and their decision for or against the product at that price (microeconomics).

How macroeconomics and microeconomics affect each other

Macro’s effects on micro 17

Should a national policy be passed, such as when the nation’s central bank cuts the interest rate (a macro impact) by 100 basis points (100 bps = 1%), this will lower the borrowing costs of commercial banks. This, in turn, helps their deposit rate to drop, which gives room to lower the interest rate on credit, and to individuals and business. This causes a rise in borrowings and creates a climate of greater investment, which helps businesses invest in new assets, projects, and expansion plans (a micro impact).

Micro’s effect on macro 18

The condition of the microeconomy is one of the many factors that determine macroeconomic policies. To continue the example, the central bank observes the lending and investment trends of businesses, individuals and households, now that the interest rate has been lowered, in order to determine whether or not they should make additional cuts. If the outlook is weak, keep rates as is, or increase them if the outlook is picking up.

How micro- and macroeconomics affect business

• The law of supply and demand 19 Businesses use microeconomic principles to better understand the behavioural patterns of their consumers, in order to be successful and generate a profit.
• Decision-making 20 Large-scale external factors that are uncontrollable, such as competitors, changes in interest rates, changes in cultural preferences, weather phenomena, and changes in governmental regulations, all play a role in influencing and affecting a company’s decisions, performance, and business strategies. Other macroeconomic factors such as legal, political, and social climates, technological advancements, and climate changes all impact on the individual’s, household’s and organisation’s decisions on resources.
• Start-ups 21 When starting a business, it is important to do extensive research into the industry you are interested in. Know where customer demand is, to better provide and develop the products and services that would best match the needs of your target market. Investing in this microeconomic research can help you reach a competitive advantage to attract customers.
• Economic cycles 22 Macroeconomics is cyclic; just as positive influences and changes promote prosperity, higher demand levels may trigger price increases, which may, in turn, dampen the economy, as households adopt leaner budgets. Then, when supply starts to outweigh demand, prices may go down again, leading to further prosperity, until the next cycle of economic supply and demand.
• The cost of goods and services 23 Regardless of what a business produces, the goal is usually to keep costs down in order to improve profits. In microeconomic theory, companies run at the highest level of efficiency, with production decisions based on how the maximum output can be achieved with minimal extra costs. So, for example, if production is ramped up, a need for extra labour may arise, resulting in the wage costs increasing, and a potential change in sales prices. In microeconomics, the cost of labour is typically the highest expense of a business.
• Pricing decisions 24 In microeconomics, the price where quantity supplied meets the quantity demanded is known as the ‘equilibrium price’. The decided price of the product or service will impact on the number of people willing to buy it. For example, setting a price above the equilibrium doesn’t always mean greater profits, as fewer people may opt to buy your product, therefore, the price of the product should match your target market’s budget.

In order to make balanced, informed business decisions, it is important to take local and global economic trends into account, as well as relevant data and interactions with your customers. Look for opportunities that arise from economic trends, both on a micro- as well as a macroeconomic levels.

Learn more about the impact of economic forces on business with the MIT Sloan Economics for Business online program.

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• 21 Goycoolea, E. (May, 2018). ‘How does microeconomics affect business’. Retrieved from Business OneHowTo .
• 22 Bloomenthal, A. (May, 2019). ‘Macroeconomic factor’. Retrieved from Investopedia .
• 23 Goycoolea, E. (May, 2018). ‘How does microeconomics affect business’. Retrieved from Business OneHowTo .
• 24 Goycoolea, E. (May, 2018). ‘How does microeconomics affect business’. Retrieved from Business OneHowTo .

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Microeconomics, Macroeconomics and Economic Policy

Essays in Honour of Malcolm Sawyer

• © 2011
• Philip Arestis 0

University of Cambridge, UK University of the Basque Country, Spain

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Table of contents (15 chapters)

Front matter, microeconomics, the function of firms: alternative views.

• Nina Shapiro

Industrial Structure and the Macro Economy

• Keith Cowling, Philip R. Tomlinson

Unemployment, Power Relations, and the Quality of Work

• David A. Spencer

The Problem of Young People Not in Employment, Education or Training: Is There a ‘Neet’ Solution?

• John McCombie, Maureen Pike

The Business of Macro Imbalances: Comparing ‘Gluts’ in Savings, Money and Profits

• William Milberg, Lauren Schmitz

Macroeconomics

A critical appraisal of the new consensus macroeconomics.

Philip Arestis

Bringing Together the Horizontalist and the Structuralist Analyses of Endogenous Money

• Giuseppe Fontana

Economic Growth and Income Distribution: Kalecki, the Kaleckians and Their Critics

• Amitava Krishna Dutt

The Influence of Michał Kalecki on Joan Robinson’s Approach to Economics

• G. C. Harcourt, Peter Kriesler

Shared Ideas Amid Mutual Incomprehension: Kalecki and Cambridge

• Jan Toporowski

Economic Policy

Is there a role for active fiscal policies supply-side and demand-side effects of fiscal policies.

• Jesus Ferreiro, Teresa Garcia del Valle, Carmen Gomez, Felipe Serrano

Fiscal Policy and Private Investment in Mexico

• U. Emilio Caballero, G. Julio López

A Keynes-Kalecki Model of Cyclical Growth with Agent-Based Features

• Mark Setterfield, Andrew Budd

Unsurprising to Keynes, Shocking to Economists: The Normalisation of Capital Controls in the Global Financial Crisis

• Ilene Grabel

Regulating Wall Street: Exploring the Political Economy of the Possible

• Gerald Epstein, Robert Pollin

Back Matter

• economic growth
• economic policy
• fiscal policy
• income distribution
• John Maynard Keynes
• macroeconomics
• microeconomics
• political economy
• unemployment

About this book

Editors and affiliations, university of cambridge, uk, university of the basque country, spain, about the editor, bibliographic information.

Book Title : Microeconomics, Macroeconomics and Economic Policy

Book Subtitle : Essays in Honour of Malcolm Sawyer

Editors : Philip Arestis

DOI : https://doi.org/10.1057/9780230313750

Publisher : Palgrave Macmillan London

eBook Packages : Palgrave Economics & Finance Collection , Economics and Finance (R0)

Copyright Information : Palgrave Macmillan, a division of Macmillan Publishers Limited 2011

Hardcover ISBN : 978-0-230-29019-8 Published: 26 July 2011

Softcover ISBN : 978-1-349-33137-6 Published: 01 January 2011

eBook ISBN : 978-0-230-31375-0 Published: 26 July 2011

Edition Number : 1

Number of Pages : XXIV, 296

Topics : Microeconomics , Macroeconomics/Monetary Economics//Financial Economics , Labor Economics , International Relations , Industrial Organization , Political Economy/Economic Systems

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• Microeconomics And Macroeconomics

Difference between Microeconomics and Macroeconomics

“Economics is the science which studies human behaviour as a relationship between given ends and scarce means which have alternative uses.”

Economic is a study about how individuals, businesses and governments make choices on allocating resources to satisfy their needs. These groups determine how the resources are organised and coordinated to achieve maximum output. They are mostly concerned with the production, distribution and consumption of goods and services.

Economics is divided into two important sections, which are: Macroeconomics & Microeconomics

Macroeconomics deals with the behaviour of the aggregate economy and Microeconomics focuses on individual consumers and businesses.

What is Microeconomics?

Microeconomics is the study of decisions made by people and businesses regarding the allocation of resources and prices of goods and services. The government decides the regulation for taxes. Microeconomics focuses on the supply that determines the price level of the economy.

It uses the bottom-up strategy to analyse the economy. In other words, microeconomics tries to understand human’s choices and allocation of resources. It does not decide what are the changes taking place in the market, instead, it explains why there are changes happening in the market.

The key role of microeconomics is to examine how a company could maximise its production and capacity, so that it could lower the prices and compete in its industry. A lot of microeconomics information can be obtained from the financial statements.

The key factors of microeconomics are as follows:

• Demand, supply, and equilibrium
• Production theory
• Costs of production
• Labour economics

Examples: Individual demand, and price of a product.

What is Macroeconomics?

Macroeconomics is a branch of economics that depicts a substantial picture. It scrutinises itself with the economy at a massive scale, and several issues of an economy are considered. The issues confronted by an economy and the headway that it makes are measured and apprehended as a part and parcel of macroeconomics .

Macroeconomics studies the association between various countries regarding how the policies of one nation have an upshot on the other. It circumscribes within its scope, analysing the success and failure of the government strategies.

In macroeconomics, we normally survey the association of the nation’s total manufacture and the degree of employment with certain features like cost prices, wage rates, rates of interest, profits, etc., by concentrating on a single imaginary good and what happens to it.

The important concepts covered under macroeconomics are as follows:

• Capitalist nation
• Investment expenditure

Examples: Aggregate demand, and national income.

Top 7 Differences Between Microeconomics And Macroeconomics

Let us look at some of the points of difference between Microeconomics and Macroeconomics

                                                          Business Application

  It is applied to environmental and external issues.

                                                                                  Scope

                                                                               Significance

                                                                              Limitations

After learning the above concepts, we can come to the conclusion that these two concepts are not antithetical but complementary to each other and they are bound to go hand in hand.

This article was all about the topic of Difference between Microeconomics and Macroeconomics, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

Frequently Asked Questions

What is the difference between macroeconomics and microeconomics.

Microeconomics is the study of economics at an individual, group, or company level. Whereas, macroeconomics is the study of a national economy as a whole. Microeconomics focuses on issues that affect individuals and companies.  Macroeconomics focuses on issues that affect nations and the world economy. 

What is the example of Microeconomics and Macroeconomics?

Unemployment, interest rates, inflation, GDP, all fall into Macroeconomics. Consumer equilibrium, individual income and savings are examples of microeconomics.

How do Microeconomics and Macroeconomics are interrelated?

Microeconomics and macroeconomics are interrelated as both the strategies focus on improving the economy of their certain fields and branches.

What are the two fields of Economics?

The field of economics is divided into microeconomics, i.e., the study of individual markets, and macroeconomics, i.e., the study of the economy as a whole.

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Microeconomics: Essay on Microeconomics

Microeconomics studies the economic actions and behaviour of individual units and small groups of individual units.

In microeconomic theory we discuss how the various cells of economic organism, that is, the various units of the economy such as thousands of consumers, thousands of producers or firms, thousands of workers and resource suppliers in the economy do their economic activities and reach their equilibrium states.

“Microeconomics consists of looking at the economy through a microscope, as it were, to see how the millions of cells in the body economic-the individuals or households as consumers, and the individuals or firms as producers—play their part in the working of the whole economic organism.”- Professor Lerner.

In other words, in microeconomics we make a microscopic study of the economy. But it should be remembered that microeconomics does not study the economy in its totality. Instead, in microeconomics we discuss equilibrium of innumerable units of the economy piecemeal and their inter-relationship to each other.

For instance, in microeconomic analysis we study the demand of an individual consumer for a good and from there go on to derive the market demand for the good (that is, demand of a group of individuals consuming a particular good). Likewise, microeconomic theory studies the behaviour of the individual firms in regard to the fixation of price and output and their reactions to the changes in the demand and supply conditions. From there we go on to establish price-output fixation by an industry (Industry means a group of firms producing the same product).

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Thus, microeconomic theory seeks to determine the mechanism by which the different economic units attain the position of equilibrium, proceeding from the individual units to a narrowly defined group such as a single industry or a single market. Since microeconomic analysis concerns itself with narrowly defined groups such as an industry or market.

However it does not study the totality of behaviour of all units in the economy for any particular economic activity. In other words, the study of economic system or economy as a whole lies outside the domain of microeconomic analysis.

Microeconomic Theory Studies Resource Allocation, Product and Factor Pricing :

Microeconomic theory takes the total quantity of resources as given and seeks to explain how they are allocated to the production of particular goods. It is the allocation of resources that determines what goods shall be produced and how they shall be produced. The allocation of resources to the production of various goods in a free-market economy depends upon the prices of the various goods and the prices of the various factors of production.

Therefore, to explain how the allocation of resources is determined, microeconomics proceeds to analyse how the relative prices of goods and factors are determined. Thus the theory of product pricing and the theory of factor pricing (or the theory of distribution) falls within the domain of microeconomics.

The theory of product pricing explains how the relative prices of cotton cloth, food grains, jute, kerosene oil and thousands of other goods are determined. The theory of distribution explains how wages (price for the use of labour), rent (payment for the use of land), interest (price for the use of capital) and profits (the reward for the entrepreneur) are determined. Thus, the theory of product pricing and the theory of factor pricing are the two important branches of microeconomic theory.

Prices of the products depend upon the forces of demand and supply. The demand for goods depends upon the consumers’ behaviour pattern, and the supply of goods depends upon the conditions of production and cost and the behaviour pattern of the firms or entrepreneurs. Thus the demand and supply sides have to be analysed in order to explain the determination of prices of goods and factors. Thus the theory of demand and the theory of production are two subdivisions of the theory of pricing.

Microeconomics as a Study of Economic Efficiency:

Besides analysing the pricing of products and factors, and the allocation of resources based upon the price mechanism, microeconomics also seeks to explain whether the allocation of resources determined is efficient. Efficiency in the allocation of resources is attained when the resources are so allocated that maximises the satisfaction of the people.

Economic efficiency involves three efficiencies; efficiency in production, efficiency in distribution of goods among the people (This is also called efficiency in consumption) and allocative economic efficiency, that is, efficiency in the direction of production. Microeconomic theory shows under what conditions these efficiencies are achieved. Microeconomics also shows what factors cause departure from these efficiencies and result in the decline of social welfare from the maximum possible level.

Economic efficiency in production involves minimisation of cost for producing a given level of output or producing a maximum possible output of various goods from the given amount of outlay or cost incurred on productive resources. When such productive efficiency is attained, then it is no longer possible by any reallocation of the productive resources or factors among the production of various goods and services to increase the output of any good without a reduction in the output of some other good.

Efficiency in consumption consists of distributing the given amount of produced goods and services among millions of the people for consumption in such a way as to maximize the total satisfaction of the society. When such efficiency is achieved it is no longer possible by any redistribution of goods among the people to make some people better off without making some other ones worse off. Allocative economic efficiency or optimum direction of production consists of producing those goods which are most desired by the people, that is, when the direction of production is such that maximizes social welfare.

In other words, allocative economic efficiency implies that pattern of production (i.e., amounts of various goods and services produced) should correspond to the desired pattern of consumption of the people. Even if efficiencies in consumption and production of goods are present, it may be that the goods which are produced and distributed for consumption may not be those preferred by the people.

There may be some goods which are more preferred by the people but which have not been produced and vice versa. To sum up, allocative efficiency (optimum direction of production) is achieved when the resources are so allocated to the production of various goods that the maximum possible satisfaction of the people is obtained.

Once this is achieved, then by producing some goods more and others less by any rearrangement of the resources will mean loss of satisfaction or efficiency. The question of economic efficiency is the subject-matter of theoretical welfare economics which is an important branch of microeconomic theory.

That microeconomic theory is intimately concerned with the question of efficiency and welfare is better understood from the following remarks of A. P. Lerner, a noted American economist. “In microeconomics we are more concerned with the avoidance or elimination of waste, or with inefficiency arising from the fact that production is not organised in the most efficient possible manner.

Such inefficiency means that it is possible, by rearranging the different ways in which products are being produced and consumed, to get more of something that is scarce without giving up any part of any other scarce item, or to replace something by something else that is preferred. Microeconomic theory spells out the conditions of efficiency (i.e., for the elimination of all kinds of inefficiency) and suggests how they might be achieved. These conditions (called Pareto-optimal conditions) can be of the greatest help in raising the standard of living of the population.”

The four basic economic questions with which economists are concerned, namely:

(1) What goods shall be produced and in what quantities,

(2) How they shall be produced,

(3) How the goods and services produced shall be distributed, and

(4) Whether the production of goods and their distribution for consumption is efficient fall within the domain of microeconomics.

The whole content of microeconomic theory is presented in the following chart:

Microeconomics and the Economy as a whole:

It is generally understood that microeconomics does not concern itself with the economy as a whole and an impression is created that microeconomics differs from macroeconomics in that whereas the latter examines the economy as a whole; the former is not concerned with it. But this is not fully correct. That microeconomics is concerned with the economy as a whole is quite evident from its discussion of the problem of allocation of resources in the society and judging the efficiency of the same.

Both microeconomics and macroeconomics analyse the economy but with two different ways or approaches. Microeconomics examines the economy, so to say, microscopically, that is, it analyses the behaviour of individual economic units of the economy, their inter-relationships and equilibrium adjustment to each other which determine the allocation of resources in the society. This is known as general equilibrium analysis.

No doubt, microeconomic theory mainly makes particular or partial equilibrium analysis, that is, the analysis of the equilibrium of the individual economic units, taking other things remaining the same. But microeconomic theory, as stated above, also concerns itself with general equilibrium analysis of the economy wherein it is explained how all the economic units, various product markets, various factor markets, money and capital markets are interrelated and interdependent to each other and how through various adjustments and readjustments to the changes in them, they reach a general equilibrium, that is, equilibrium of each of them individually as well as collectively to each other.

Professor A. P. Lerner rightly points out, “Actually microeconomics is much more intimately concerned with the economy as a whole than is macroeconomics, and can even be said to examine the whole economy microscopically. We have seen how economic efficiency is obtained when the “cells” of the economic organism, the households and firms, have adjusted their behaviour to the prices of what they buy and sell. Each cell is then said to be in equilibrium.’ But these adjustments in turn affect the quantities supplied and demanded and therefore also their prices. This means that the adjusted cells then have to readjust themselves. This in turn upsets the adjustment of others again and so on. An important part of microeconomics is examining whether and how all the different cells get adjusted at the same time. This is called general equilibrium analysis in contrast with particular equilibrium or partial equilibrium analysis. General equilibrium analysis is the microscopic examination of the inter-relationships of parts within the economy as a whole. Overall economic efficiency is only a special aspect of this analysis.”

Importance and Uses of Microeconomics:

Microeconomics occupies a vital place in economics and it has both theoretical and practical importance. It is highly helpful in the formulation of economic policies that will promote the welfare of the masses. Until recently, especially before Keynesian Revolution, the body of economics consisted mainly of microeconomics. In spite of the popularity of macroeconomics these days, microeconomics retains its importance, theoretical as well as practical.

It is microeconomics that tells us how a free-market economy with its millions of consumers and producers works to decide about the allocation of productive resources among the thousands of goods and services. As Professor Watson says, “microeconomic theory explains the composition or allocation of total production, why more of some things are produced than of others.”

He further remarks that microeconomic theory “has many uses. The greatest of these is depth in understanding of how a free private enterprise economy operates.” Further, it tells us how the goods and services produced are distributed among the various people for consumption through price or market mechanism. It shows how the relative prices of various products and factors are determined, that is, why the price of cloth is what it is and why the wages of an engineer are what they are and so on.

Moreover, as described above, microeconomic theory explains the conditions of efficiency in consumption and production and highlights the factors which are responsible for the departure from the efficiency or economic optimum. On this basis, microeconomic theory suggests suitable policies to promote economic efficiency and welfare of the people.

Thus, not only does microeconomic theory describe the actual operation of the economy, it has also a normative role in that it suggests policies to eradicate “inefficiency” from the economic system so as to maximize the satisfaction or welfare of the society. The usefulness and importance of microeconomics has been nicely stated by Professor Lerner.

He writes, “Microeconomic theory facilitates the understanding of what would be a hopelessly complicated confusion of billions of facts by constructing simplified models of behaviour which are sufficiently similar to the actual phenomena to be of help in understanding them. These models at the same time enable the economists to explain the degree to which the actual phenomena depart from certain ideal constructions that would most completely achieve individual and social objectives.

They thus help not only to describe the actual economic situation but to suggest policies that would most successfully and most efficiently bring about desired results and to predict the outcomes of such policies and other events. Economics thus has descriptive, normative and predictive aspects.”

We have noted above that microeconomics reveals how a decentralised system of a free private enterprise economy functions without any central control. It also brings to light the fact that the functioning of a complete centrally directed economy with efficiency is impossible. Modern economy is so complex that a central planning authority will find it too difficult to get all the information required for the optimum allocation of resources and to give directions to thousands of production units with various peculiar problems of their own so as to ensure efficiency in the use of resources.

To quote Professor Lerner again, “Microeconomics teaches us that completely ‘direct’ running of the economy is impossible—that a modern economy is so complex that no central planning body can obtain all the information and give out all the directives necessary for its efficient operation.

These would have to include directives for adjusting to continual changes in the availabilities of millions of productive resources and intermediate products, in the known methods of producing everything everywhere, and in the quantities and qualities of the many items to be consumed or to be added to society’s productive equipment.

The vast task can be achieved, and in the past has been achieved, only by the development of a decentralised system whereby the millions of producers and consumers are induced to act in the general interest without the intervention of anybody at the centre with instructions as to what one should make and how and what one should consume.

Microeconomic theory shows that welfare optimum of economic efficiency is achieved when there prevails perfect competition in the product and factor markets. Perfect competition is said to exist when there are so many sellers and buyers in the market so that no individual seller or buyer is in a position to influence the price of a product or factor.

Departure from perfect competition leads to a lower level of welfare, that is, involves loss of economic efficiency. It is in this context that a large part of microeconomic theory is concerned with showing the nature of departures from perfect competition and therefore from welfare optimum (economic efficiency). The power of giant firms or a combination of firms over the output and price of a product constitutes the problem of monopoly.

Microeconomics shows how monopoly leads to misallocation of resources and therefore involves loss of economic efficiency or welfare. It also makes important and useful policy recommendations to regulate monopoly so as to attain economic efficiency or maximum welfare. Like monopoly, monopsony (that is, when a single large buyer or a combination of buyers exercises control over the price) also leads to the loss of welfare and therefore needs to be controlled.

Similarly, microeconomics brings out the welfare implications of oligopoly (or oligopsony) whose main characteristic is that individual sellers (or buyers) have to take into account, while deciding upon their course of action, how their rivals react to their moves regarding changes in price, product and advertising policy.

Another class of departure from welfare optimum is the problem of externalities. Externalities are said to exist when the production or consumption of a commodity affects other people than those who produce, sell or buy it. These externalities may be in the form of either external economies or external diseconomies. External economies prevail when the production or consumption of a commodity by an individual benefits other individuals and external diseconomies prevail when the production or consumption of a commodity by him harms other individuals.

Microeconomic theory reveals that when the externalities exist free working of the price mechanism fails to achieve economic efficiency, since it does not take into account the benefits or harms made to those external to the individual producers and the consumers. The existence of these externalities requires government intervention for correcting imperfections in the price mechanism in order to achieve maximum social welfare.

Several Practical Applications of Microeconomics for Formulating Economic Policies :

Microeconomic analysis is also usefully applied to the various applied branches of economics such as Public Finance, International Economics. It is the microeconomic analysis which is used to explain the factors which determine the distribution of the incidence or burden of a commodity tax between producers or sellers on the one hand and the consumers on the other.

Further, microeconomic analysis is applied to show the damage done to the social welfare or economic efficiency by the imposition of a tax. If it is assumed that resources are optimally allocated or maximum social welfare prevails before the imposition of a tax, it can be demonstrated by microeconomic analysis that what amount of the damage will be caused to the social welfare.

The imposition of a tax on a commodity (i.e., indirect tax) will lead to the loss of social welfare by causing deviation from the optimum allocation of resources the imposition of a direct tax (for example, income tax) will not disturb the optimum resource allocation and therefore will not result in loss of social welfare. Further, microeconomic analysis is applied to show the gain from international trade and to explain the factors which determine the distribution of this gain among the participant countries.

Besides, microeconomics finds application in the various problems of international economics. Whether devaluation will succeed in correcting the disequilibrium in the balance of payments depends upon the elasticity’s of demand and supply of exports and imports. Furthermore, the determination of the foreign exchange rate of a currency, if it is free to vary, depends upon the demand for and supply of that currency. We thus see that microeconomic analysis is a very useful and important branch of modern economic theory.

Related Articles:

• Microeconomics: Notes on Meaning of Microeconomics – Discussed!
• Difference between Microeconomics and Macroeconomics
• Difference between Macroeconomics and Microeconomics
• Essay on Microeconomics and Macroeconomics

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• Guide to Microeconomics

How Microeconomics Affects Everyday Life: Renting an Apartment

Learn to make the best use of limited resources

Microeconomics  is the study of how individuals and businesses make choices regarding the best use of limited resources. Its principles can be usefully applied to decision-making in everyday life—for example, when you rent an apartment. Most people, after all, have a limited amount of time and money. They cannot buy or do everything they want, so they make calculated microeconomic decisions on how to use their limited resources to maximize personal satisfaction.

Similarly, a business also has limited time and money. Businesses also make decisions that result in the best outcome for the business, which may be to maximize profit. 

The field of microeconomics interests investors because individual consumer spending accounts for roughly 70% of the U.S. economy. Microeconomics and macroeconomics (the study of the larger aggregate economy) together make up the two main branches of economics.

Key Takeaways

• Microeconomics uses a set of fundamental principles to make predictions about how individuals behave in certain situations involving economic or financial transactions.
• These principles include the law of supply and demand, opportunity costs, and utility maximization.
• Microeconomics also applies to businesses.

Some Principles of Microeconomics

Before using microeconomics to understand its use in renting an apartment, it helps to understand some fundamentals. Microeconomics uses certain basic principles to explain how individuals and businesses make decisions. These are:

• Maximizing utility —Maximizing utility means that individuals make decisions to maximize their satisfaction.
• Opportunity cost —When an individual makes a decision, they also calculate the cost of forgoing the next best alternative. If, for instance, you use your frequent flier miles to take a trip to the Bahamas, you will no longer be able to redeem the miles for cash. The missed cash is an opportunity cost .
• Diminishing marginal utility — Diminishing marginal utility , another economic input, describes the general consumer experience that the more you consume of something, the lower the satisfaction you get from it. When you eat a burger, for example, you may feel very satisfied, but if you eat a second burger, you may feel less satisfaction than you experienced with the first burger.
• Supply and demand —Two other important economic principles are supply and demand as they appear in the market. Market supply refers to the total amount of a certain good or service available on the market to consumers, while market demand refers to the total demand for that good or service. The interplay of supply and demand helps determine prices for a product or service, with higher demand and limited supply typically making for higher prices.

The amount of the U.S. economy accounted for by consumer spending

Applying Microeconomics to Renting an Apartment 

To help understand how microeconomics affects everyday life, let’s study the process of renting an apartment. In New York City there is a limited supply of housing and high demand. This explains why housing costs in New York are high, according to the principles of microeconomics just outlined.

Maximizing utility

To rent an apartment, first you must determine a budget. For this you will have to take into account your income and how much money you are looking to spend on housing, in such a way as to maximize your utility or satisfaction. If you allocate too much of your income to rent, you will limit the money you have left for other expenses. Thus, you will have to decide what amount of money is the maximum you are willing to part with for rent, what amenities you must have in your apartment, and which neighborhoods are acceptable to you. All of these decisions and calculations are about maximizing utility.

Opportunity cost

Based on all the above factors, you set a budget to get the most satisfaction for the least possible rent. You will not pay more than you have to in order to get what you want. Given that in this supply-constrained market there are others also interested in renting the more in-demand apartments, you might find that you will have to increase your budget. To do this you will have to cut down on spending in another area, such as entertainment, travel, or eating out. That is the opportunity cost of finding the right apartment.

Supply and demand

Similarly, a landlord will seek to rent an apartment at the highest price possible, as their motivation generally is to get the best return from renting out the apartment. In setting the rent, the landlord would have to take into account the demand for the apartment in that specific neighborhood. If there are enough potential renters interested in the apartment, the landlord would set a higher rent. If the rent is set too high, compared with what other landlords in the neighborhood are charging for comparable apartments, renters will not be interested. Thus the business owner, in this case the landlord, also makes decisions based on supply and demand.

And while the landlord would attract a larger pool of prospective renters by setting a rent that is lower than what other neighborhood landlords are charging for comparable apartments, they would be missing out on some rental income, which will not maximize their utility. Thus, both you and the landlord will make decisions to get the best outcome for yourselves given the constraints you face.

The Bottom Line

In a capitalist economy, both consumers and businesses make thousands of big and small decisions each year guided by microeconomic issues. Consumers seek to maximize their satisfaction when they go out and shop for anything from paper towels to apartments, houses, and cars. Businesses set prices and make other decisions based on microeconomics. The prices that consumers will pay depends on the supply of a specific good, such as an apartment, as well as how much others are willing to pay for it.

Bureau of Economic Analysis. “ National Income and Product Accounts Tables ," Download "Table 1.1.6. Real Gross Domestic Product, Chained Dollars." 

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Economics, BA (Hons)

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Economics at Cambridge

Economics at Cambridge gives you an understanding of core, pure and applied economics.

Study a range of different topics, including supply and demand, the role of prices and markets, employment, inflation, the operation of financial institutions and monetary policy.  

Our course provides a sound understanding of core, pure and applied economics.

You study economics in considerable depth, while also using ideas and techniques from many other disciplines including:

• mathematics

Facilities and resources

Past and present Faculty members, such as Alfred Marshall and John Maynard Keynes, have played a major role in the subject’s development.

Several members of our Faculty have been awarded the Nobel Prize in Economics, including Sir John Hicks, James Meade, Sir Richard Stone, Sir James Mirrlees and Amartya Sen.

We are committed to using economics to improve public policy. Recent staff have been active on the Monetary Policy Committee of the Bank of England the Competition Commission.

They also advise international agencies such as the United Nations, World Bank, International Monetary Fund and Organisation for Economic Co-Operation and Development.

Our Faculty of Economics facilities include:

• access to an extensive range of statistical databases and software
• the Marshall Library of Economics, which holds a comprehensive collection of books, journals and other papers in economics
• the student-run Marshall Society, which organises social events and informal lectures from distinguished visiting speakers

You'll also have access to the impressive Cambridge University Library, one of the world’s oldest university libraries.

Course costs

When you go to university, you’ll need to consider two main costs – your tuition fees and your living costs (sometimes referred to as maintenance costs).

Your living costs will include costs related to your studies that are not covered by your tuition fees. There are some general study costs that will apply for all students – you can find details of these costs here .

Other additional course costs for Economics are detailed below. If you have any queries about resources/materials, please contact the Faculty.

• University approved scientific calculator: CASIO FX570, CASIO FX115 or CASIO FX991. Estimated cost £20.

Your future career

As an Economics graduate, you will communicate well. You will have the skills to understand complex arguments and analyse practical issues and data.

These skills are valuable in many careers, particularly professional, financial and managerial occupations. They also provide a helpful foundation for many Masters’ degree courses.

Many graduates go on to professional training in:

• chartered accountancy
• actuarial work and similar fields

Other graduates go on to work as professional economists in:

• financial institutions
• government and management consultancy

Teaching is provided through lectures, practical classes and small-group supervisions.

In your first year you can usually expect 10 to 15 lectures each week.

You’ll be assessed through formal written examinations at the end of each year and the compulsory dissertation in the third year.

Typically, you have one 3-hour exam for each paper covered that year.

In your first year:

• British Economic History paper is assessed through an exam paper and a project.

In your second year:

• Econometrics paper is assessed through a project
• History and Philosophy of Economics paper is assessed through essay work

You won't usually be able to resit any of your exams.

Year 1 (Part I)

You get an introduction to the subject, a common core of knowledge which can subsequently be extended.

You take 5 compulsory papers:

• Microeconomics
• Macroeconomics
• Quantitative Methods in Economics, an introduction to the use of mathematical and statistical techniques in economics
• Political and Social Aspects of Economics
• British Economic History

These papers cover topics such as:

• supply and demand
• the role of prices and markets
• the operation of financial institutions
• monetary policy

Year 2 (Part IIA)

You take 3 compulsory papers:

• Theory and Practice of Econometrics I

You also take one optional paper, chosen from:

• International Trade and Development
• Mathematics and Statistics for Economists
• Modern Societies
• The Modern State and its Alternatives
• International Conflict, Order and Justice
• History and Philosophy of Economics, also available as an optional paper in the third year
• World Depression in the Interwar Years

Through these papers you:

• acquire a knowledge and understanding of a range of key topics and analytical techniques in microeconomic and macroeconomic theory
• develop knowledge of key econometric techniques
• learn the IT skills needed to undertake a project in applied econometrics

Year 3 (Part IIB)

You take 2 compulsory papers:

• Microeconomic Principles and Problems
• Macroeconomic Principles and Problems

You also take two optional papers and write a compulsory dissertation of 7,500 words.

Optional papers can vary from year to year. Recent examples include:

• Economic Theory and Analysis
• Political Economics
• Banking and Finance
• Public Economics
• The Economics of Developing Countries
• Theory and Practice of Econometrics II
• Global Capitalism
• British and European Politics
• History and Philosophy of Economics, also available as an optional paper in the second year

For further information about this course and the papers you can take see the Faculty of Economics website .

Changing course

It’s really important to think carefully about which course you want to study before you apply. 

In rare cases, it may be possible to change course once you’ve joined the University. You will usually have to get agreement from your College and the relevant departments. It’s not guaranteed that your course change will be approved.

You might also have to:

• take part in an interview
• complete an admissions test
• produce some written work
• achieve a particular grade in your current studies
• do some catch-up work
• start your new course from the beginning 

For more information visit the Faculty website .

You can also apply to change to:

• Management Studies at the Judge Business School

You can't apply to this course until you're at Cambridge. You would usually apply when you have completed 1 year or more of your original Cambridge course.

You should contact your College’s Admissions Office if you’re thinking of changing your course. They will be able to give you advice and explain how changing courses works.

Minimum offer level

A level: A*A*A IB: 41-42 points, with 776 at Higher Level Other qualifications : Check which other qualifications we accept

Subject requirements

To apply to any of our Colleges for Economics, you will need A levels/IB Higher Levels (or the equivalent) in: 

• Mathematics 

If you’re studying IB, we ask for Analysis and Approaches for this course. If this isn’t an option at your school, please contact the College you wish to apply to for advice. 

The following Colleges also require Further Mathematics at A level: 

• Christ’s College
• St John's College
• Magdalene College 

Colleges will usually require you to achieve an A*/7 in Mathematics and/or Further Mathematics. 

If you are applying to Trinity Hall, you will also need an A level/IB Higher Level in an essay-based subject.

These subject requirements are provisional for 2025 entry. Please check back in April 2024 for confirmed details.

Further Mathematics A level 

A level Further Mathematics is very strongly encouraged. If unavailable or you’ve recognised its desirability too late, we’d advise you to do as much additional maths as possible, eg by studying advanced material or Further Mathematics AS level.

What Economics students have studied

Most Economics students (who had studied A levels and started at Cambridge in 2017-19) achieved at least A*A*A* (87% of entrants).

Most had studied:

• Economics (93%)
• Further Mathematics (93%)
• or both (86%)

The majority of students who studied IB achieved at least 44 points overall.

Check our advice on choosing your high school subjects . You should also check if there are any required subjects for your course when you apply.

Admissions test

All applicants for Economics for 2025 entry are required to take the Test of Mathematics for University Admission (TMUA) at an authorised assessment centre. You must register in advance for this test.

Please see the admissions test page for more information.

If you applied to study Economics in the 2024 entry March application round , you'll be required to take a written assessment if you're invited to interview. You won't need to register in advance for this and your College will provide details in your interview invitation. See the admissions test page for more information.

Submitted work

You won't usually be asked to submit examples of written work. You may be asked to do some reading prior to your interview, but if this is required the College will provide full details in your interview invitation.

Offers above the minimum requirement

The minimum offer level and subject requirements outline the minimum you'll usually need to achieve to get an offer from Cambridge.

In some cases, you'll get a higher or more challenging offer. Colleges set higher offer requirements for a range of reasons. If you'd like to find out more about why we do this,  check the information about offers above the minimum requirement  on the entry requirements page.

Some Colleges usually make offers above the minimum offer level. Find out more on our qualifications page .

All undergraduate admissions decisions are the responsibility of the Cambridge Colleges. Please contact the relevant  College admissions office  if you have any queries.

Discover your department or faculty

• Visit the Faculty of Economics website - The Faculty of Economics website has more information about this course, facilities, people and research.

Explore our Colleges

• Find out how Colleges work - A College is where you’ll live, eat and socialise. It’s also where you’ll have teaching in a small group, known as supervisions.
• How to choose a Cambridge College that's right for you - If you think you know which course you’d like to study, it’s time to choose a College.

Visit us on open day

• Book an open day - Get a feel for the city and the University.
• Find an event - We offer a range of events where you can find out more about Cambridge, Colleges, and your course. Many of our events have hybrid options so you can join us virtually.

Find out how to apply

• Find out how to apply and how our admissions processes work - Our admissions process is slightly different to other universities. We’ve put together a handy guide to tell you everything you need to know about applying to study at Cambridge.
• Improve your application - Supercurricular activities are a great way to engage with your chosen subject outside of school or college.

Discover Uni data

Contextual information.

Discover Uni allows you to compare information about individual courses at different higher education institutions.  This can be a useful method of considering your options and what course may suit you best.

However, please note that superficially similar courses often have very different structures and objectives, and that the teaching, support and learning environment that best suits you can only be determined by identifying your own interests, needs, expectations and goals, and comparing them with detailed institution- and course-specific information.

We recommend that you look thoroughly at the course and University information contained on these webpages and consider coming to visit us on an Open Day , rather than relying solely on statistical comparison.

You may find the following notes helpful when considering information presented by Discover Uni.

• Discover Uni relies on superficially similar courses being coded in the same way. Whilst this works on one level, it may lead to some anomalies. For example, Music courses and Music Technology courses can have exactly the same code despite being very different programmes with quite distinct educational and career outcomes. Any course which combines several disciplines (as many courses at Cambridge do) tends to be compared nationally with courses in just one of those disciplines, and in such cases the Discover Uni comparison may not be an accurate or fair reflection of the reality of either. For example, you may find that when considering a degree which embraces a range of disciplines such as biology, physics, chemistry and geology (for instance, Natural Sciences at Cambridge), the comparison provided is with courses at other institutions that primarily focus on just one (or a smaller combination) of those subjects.You may therefore find that not all elements of the Cambridge degree are represented in the Discover Uni data.
• Some contextual data linked from other surveys, such as the National Student Survey (NSS) or the Destination of Leavers in Higher Education (DLHE), may not be available or may be aggregated across several courses or several years due to small sample sizes.  When using the data to inform your course choice, it is important to ensure you understand how it has been processed prior to its presentation. Discover Uni offers some explanatory information about how the contextual data is collated, and how it may be used, which you can view here: https://discoveruni.gov.uk/about-our-data/ .
• Discover Uni draws on national data to provide average salaries and employment/continuation data.  Whilst starting salaries can be a useful measure, they do not give any sense of career trajectory or take account of the voluntary/low paid work that many graduates undertake initially in order to gain valuable experience necessary/advantageous for later career progression. Discover Uni is currently piloting use of the Longitudinal Education Outcomes (LEO) data to demonstrate possible career progression; it is important to note that this is experimental and its use may be modified as it embeds.

The above list is not exhaustive and there may be other important factors that are relevant to the choices that you are making, but we hope that this will be a useful starting point to help you delve deeper than the face value of the Discover Uni data.

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• 15 April 2024

Revealed: the ten research papers that policy documents cite most

• Dalmeet Singh Chawla 0

Dalmeet Singh Chawla is a freelance science journalist based in London.

You can also search for this author in PubMed   Google Scholar

Policymakers often work behind closed doors — but the documents they produce offer clues about the research that influences them. Credit: Stefan Rousseau/Getty

When David Autor co-wrote a paper on how computerization affects job skill demands more than 20 years ago, a journal took 18 months to consider it — only to reject it after review. He went on to submit it to The Quarterly Journal of Economics , which eventually published the work 1 in November 2003.

Autor’s paper is now the third most cited in policy documents worldwide, according to an analysis of data provided exclusively to Nature . It has accumulated around 1,100 citations in policy documents, show figures from the London-based firm Overton (see ‘The most-cited papers in policy’), which maintains a database of more than 12 million policy documents, think-tank papers, white papers and guidelines.

“I thought it was destined to be quite an obscure paper,” recalls Autor, a public-policy scholar and economist at the Massachusetts Institute of Technology in Cambridge. “I’m excited that a lot of people are citing it.”

The most-cited papers in policy

Economics papers dominate the top ten papers that policy documents reference most.

Data from Sage Policy Profiles as of 15 April 2024

The top ten most cited papers in policy documents are dominated by economics research. When economics studies are excluded, a 1997 Nature paper 2 about Earth’s ecosystem services and natural capital is second on the list, with more than 900 policy citations. The paper has also garnered more than 32,000 references from other studies, according to Google Scholar. Other highly cited non-economics studies include works on planetary boundaries, sustainable foods and the future of employment (see ‘Most-cited papers — excluding economics research’).

These lists provide insight into the types of research that politicians pay attention to, but policy citations don’t necessarily imply impact or influence, and Overton’s database has a bias towards documents published in English.

Interdisciplinary impact

Overton usually charges a licence fee to access its citation data. But last year, the firm worked with the London-based publisher Sage to release a free web-based tool that allows any researcher to find out how many times policy documents have cited their papers or mention their names. Overton and Sage said they created the tool, called Sage Policy Profiles, to help researchers to demonstrate the impact or influence their work might be having on policy. This can be useful for researchers during promotion or tenure interviews and in grant applications.

Autor thinks his study stands out because his paper was different from what other economists were writing at the time. It suggested that ‘middle-skill’ work, typically done in offices or factories by people who haven’t attended university, was going to be largely automated, leaving workers with either highly skilled jobs or manual work. “It has stood the test of time,” he says, “and it got people to focus on what I think is the right problem.” That topic is just as relevant today, Autor says, especially with the rise of artificial intelligence.

Most-cited papers — excluding economics research

When economics studies are excluded, the research papers that policy documents most commonly reference cover topics including climate change and nutrition.

Walter Willett, an epidemiologist and food scientist at the Harvard T.H. Chan School of Public Health in Boston, Massachusetts, thinks that interdisciplinary teams are most likely to gain a lot of policy citations. He co-authored a paper on the list of most cited non-economics studies: a 2019 work 3 that was part of a Lancet commission to investigate how to feed the global population a healthy and environmentally sustainable diet by 2050 and has accumulated more than 600 policy citations.

“I think it had an impact because it was clearly a multidisciplinary effort,” says Willett. The work was co-authored by 37 scientists from 17 countries. The team included researchers from disciplines including food science, health metrics, climate change, ecology and evolution and bioethics. “None of us could have done this on our own. It really did require working with people outside our fields.”

Sverker Sörlin, an environmental historian at the KTH Royal Institute of Technology in Stockholm, agrees that papers with a diverse set of authors often attract more policy citations. “It’s the combined effect that is often the key to getting more influence,” he says.

Has your research influenced policy? Use this free tool to check

Sörlin co-authored two papers in the list of top ten non-economics papers. One of those is a 2015 Science paper 4 on planetary boundaries — a concept defining the environmental limits in which humanity can develop and thrive — which has attracted more than 750 policy citations. Sörlin thinks one reason it has been popular is that it’s a sequel to a 2009 Nature paper 5 he co-authored on the same topic, which has been cited by policy documents 575 times.

Although policy citations don’t necessarily imply influence, Willett has seen evidence that his paper is prompting changes in policy. He points to Denmark as an example, noting that the nation is reformatting its dietary guidelines in line with the study’s recommendations. “I certainly can’t say that this document is the only thing that’s changing their guidelines,” he says. But “this gave it the support and credibility that allowed them to go forward”.

Broad brush

Peter Gluckman, who was the chief science adviser to the prime minister of New Zealand between 2009 and 2018, is not surprised by the lists. He expects policymakers to refer to broad-brush papers rather than those reporting on incremental advances in a field.

Gluckman, a paediatrician and biomedical scientist at the University of Auckland in New Zealand, notes that it’s important to consider the context in which papers are being cited, because studies reporting controversial findings sometimes attract many citations. He also warns that the list is probably not comprehensive: many policy papers are not easily accessible to tools such as Overton, which uses text mining to compile data, and so will not be included in the database.

The top 100 papers

“The thing that worries me most is the age of the papers that are involved,” Gluckman says. “Does that tell us something about just the way the analysis is done or that relatively few papers get heavily used in policymaking?”

Gluckman says it’s strange that some recent work on climate change, food security, social cohesion and similar areas hasn’t made it to the non-economics list. “Maybe it’s just because they’re not being referred to,” he says, or perhaps that work is cited, in turn, in the broad-scope papers that are most heavily referenced in policy documents.

As for Sage Policy Profiles, Gluckman says it’s always useful to get an idea of which studies are attracting attention from policymakers, but he notes that studies often take years to influence policy. “Yet the average academic is trying to make a claim here and now that their current work is having an impact,” he adds. “So there’s a disconnect there.”

Willett thinks policy citations are probably more important than scholarly citations in other papers. “In the end, we don’t want this to just sit on an academic shelf.”

doi: https://doi.org/10.1038/d41586-024-00660-1

Autor, D. H., Levy, F. & Murnane, R. J. Q. J. Econ. 118 , 1279–1333 (2003).

Article   Google Scholar  

Costanza, R. et al. Nature 387 , 253–260 (1997).

Willett, W. et al. Lancet 393 , 447–492 (2019).

Article   PubMed   Google Scholar  

Steffen, W. et al. Science 347 , 1259855 (2015).

Rockström, J. et al. Nature 461 , 472–475 (2009).

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SASCA PhD Conference 2024 – Call for papers

17 april 2024, 23 september 2024, 24 september 2024, 15 june 2024.

Ca’ Foscari University of Venice and University of Sassari are pleased to announce call for papers to participate in the fourth edition of SASCA PhD Conference 2024.

The event will take place in-person on the 23rd and 24th of September at the Department of Economics, Ca' Foscari University of Venice, Italy . The conference will bring together promising PhD students to encourage the exchange of ideas and networking.

We are pleased to announce that this year we will be hosting François Maniquet (UCLouvain, LISER) and Nicola Limodio (Bocconi University, JPAL and CEPR) as keynote speakers.

Submissions are open to PhD students and recent graduates in any field of Economics and Finance. We are looking for complete and work-in-progress papers in applied microeconomics, applied macroeconomics, finance and banking, microeconomic theory, macroeconomic theory, econometrics and quantitative methods, behavioral and experimental economics, etc. You can apply with your full article which will be evaluated by a Scientific Committee. During the conference, each presentation will include a discussion and a brief Q&A session.

The deadline for submission is June 15, 2024 .  Papers authored individually or co-authored with young scholars are particularly encouraged.

To apply and for further information please visit the webpage of the conference: https://sites.google.com/view/sassari-venice-phd-conference/home   For any inquiry , please email us at [email protected] .  We look forward to receiving your application!

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