Micro vs Macro

My friend Juaschimir asked what the difference between microeconomics and macroeconomics is. I am glad you asked.

Micro focuses on the distribution of scarce resources among individuals, households, and firms. Here we look at trade between firms and firms, individuals and firms, and individuals and individuals (and possibly trade-offs among those units). A classic example is the pricing of a good. A company produces a good with given costs of factors of production (theory of the firm). Individuals and household act as producers (labour economics) and consumers (consumption theory). Those two will form demand and supply, resulting in a price equilibrium (pricing theory). You can think of other micro markets like the marriage market, the market for kidnap and ransom… The important thing to remember here is that this field of study focuses on single units of analysis.

Macro, on the other hand, looks at aggregate levels of the economy. It is an analysis of the economic environment. What happens when interest rates are low? What is the average price level and/or inflation? What constitutes the balance of payments in gross exports and imports. Here the unit of analysis shifts to the aggregate level.

Gary Becker

I’m a micro guy. To me this is more intuitive and more interesting. I like using economics as tool to decipher human behavior. This is called the “economic approach”, a term coined by Nobel laureate Gary Beck. This understanding of economics sees the field less as a body of knowledge and more as an instrument to explain human interactions in a theoretical and math-based way. I always felt that macro is seen more as a body of knowledge that one can agree or disagree on, rather than a methodological approach – And I like the methodological approach of micro...