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In turn, the performance of the macroeconomy ultimately depends on the microeconomic decisions made by individual households and businesses. 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 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. Whether you are looking at lakes or economics, the micro and the macro insights should illuminate each other. Macroeconomists might look at the larger ecosystem in this image, while a microeconomist would focus on specific features. In a similar way, both microeconomics and macroeconomics study the same economy, but each has a different starting point, perspective, and focus.įigure 1. Both approaches are useful, and both researchers study the same lake, but the viewpoints are different. 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. 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. To understand why both microeconomic and macroeconomic perspectives are useful, consider the problem of studying a biological ecosystem like a lake. Microeconomics and macroeconomics are not separate subjects but are, rather, complementary perspectives on the overall subject of the economy. It focuses on broad issues such as growth, unemployment, inflation, and trade balance.

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 should be clear by now that economics covers a lot of ground.