Microeconomics vs. Macroeconomics And How The Relate To Concepts of Supply and Demand

Microeconomics refers to the study of both business and individual decisions regarding resources allocation as well as prices of goods and services offered while macroeconomics refers to the study of the behavior of the entire economy, not just certain businesses or individuals (Weintraub, 1979). Microeconomics looks into issues such as consumer behavior and specific labor markets while macroeconomics focuses on aggregate variables that affect the economy such as inflation and national productivity levels.

Demand and supply is what individuals look at since they focus on microeconomics. However, economists who are more interested in macroeconomics look into aggregate demand and supply(Weintraub, 1979). The total amount of goods and services produced compared to the total consumption of those goods and services dictate the price of a commodity. When the price of a product is high, producers tend to produce more of the same and vice versa.

Naturally, a demand curve gradientsdownward while a supply curve slants upwards. The two curves meet at the equilibrium price. In line with this, an increase in supply moves the supply curve line further away from 0, and a decrease in supply moves the line closer to 0. This concept also applies to the demand curve line. This represents the macroeconomics behind how money spent on microeconomics level by product buyers is established and controlled (Weintraub, 1979).

After hurricane Katrina, the price of fish went up because the supply of fish went down. The hurricane destroyed fishermen’s equipment as well as destroying fish natural habitats. This made fishing a challenge hence lowering supply. The situation is an example of a Microeconomic description of demand and supply. On a graph, the supply curve would move to the left while the demand curve would stay the same point resulting in a rise in equilibrium prices (Weintraub, 1979).

As inflation increases, the dollar is worth less. This is yet another example of Macroeconomics description of demand and supply. When inflation increases, taxes go up. The increase in taxes charged raises enough money to pay back the money that the government already owns(Weintraub, 1979). This can be seen as increased demand and supply.

Different situations affect demand and supply in different ways. There are situations where microeconomic situations can affect macroeconomic situations, and vice versa. The simplest way to remember this is by simply understanding that Micro is small, while Macro is big.

 


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