Jana Moravcová
379161
May 12, 2014
Jana Moravcová:
Microeconomics and Macroeconomics
Economics became one of the most important fields of study during the last century and the trend
still continues. We hear about economics every day under various circumstances, we discuss it at
work, school and homes. Economics consists of many subareas, with microeconomics and
macroeconomics being the key division and the most important concepts. They divide the discipline
of economics into two wide and intertwined fields. In this essay we will introduce both
macroeconomics and microeconomics, and briefly discuss their characteristics.
Microeconomics is “the study of how households and firms make decisions and how they interact in
specific markets.”(Mankiw, 2011) Microeconomics can be imagined divided into three levels. The
first level examines behaviour among individual consumers, workers and investors and searches for
rules which induce this behaviour. The main concept of this level is utility and its illustration in the
form of indifference curves. Behind this level, as in microeconomics in general, stands an important
assumption of individuals’ desire to maximize their profits. The second level connects single subjects
with larger units, such as companies, with supply and demand in markets as the key concepts.
Interactions between firms are also considered in this level, with attention paid to creation of prices
and size of production. In most cases, markets in the field of microeconomics tend to be assumed as
perfectly competitive. In this level, however, it is not necessary as microeconomics examines price
creation for other forms of markets as well. The third level shows the influence of the state and
impact of governments’ decisions on the two previous levels. Taxes, social payments and other
transfers are considered. These three levels together create a complex system.
Microeconomics examines individual units in the economy. On the contrary, “macroeconomics is the
study of the economy as a whole, including growth in income, changes in prices and rates of
unemployment. Macroeconomics attempts both to explain economic events and to devise policies to
improve economic performance.” (Mankiw, 2010) It compares economies and searches for rules
inducing the state in which the particular economy is. Macroeconomics is the key to decision making
for both governments and government-related organizations, as well as for supranational
organizations. A central concept in macroeconomics lies in macroeconomic variables (aggregates).
Among the most important aggregates are gross domestic product (GDP), the rate of inflation and
unemployment rates. Inflation is often examined together with both GDP and the unemployment
rate. In the second half of twentieth century, the latter combination was believed (and by some
economists still is) to be the key factor for economic growth. Today however, all of these variables
are considered equally important. Macroeconomics is mostly studied in the form of macroeconomic
models. It is necessary to remember that these models have to be consistent with microeconomic
theory and models, as microeconomics stays in the background, although none of it is usually
explicitly considered.
Microeconomics and macroeconomics differ in many characteristics, including the areas of focus,
methods of research and modelling. However, both are highly dependent on each other.
Jana Moravcová
379161
May 12, 2014
References:
Andrew B. Abel, 2000. Macroeconomics (Web-enabled Edition) (4th Edition). 4 Edition. Addison
Wesley.
Robert S. Pindyck, 2001. Microeconomics. 5th Edition. Prentice Hall.
N. Gregory Mankiw, 2010. Macroeconomics. Seventh Edition. Worth Publishers.
N. Gregory Mankiw, 2011. Principles of Microeconomics. 6 Edition. Cengage Learning.
Summary of feedback
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A generally well written piece on a complex theoretical subject.
Formal language: Use of ‘we’ in a general sense is quite informal and colloquial (e.g., We talk
about economics…’). I’d instead suggest using the passive voice. Use of ‘we’ as a pronoun for the
author is okay if there are two or more authors, otherwise it is quite old fashioned (The Queen is
supposed to speak this way).
Commas: See my edits to your use of commas.
Articles: Your use of articles is pretty good. However be aware of generic expressions like ‘in the
form of…’.
Cutting out repetition: The following sentence is grammatically correct but in formal writing it is
common to cut out unnecessary repetition (see where I have cut out ‘will’): ‘In this essay we will
introduce both macroeconomics and microeconomics, and will briefly discuss their
characteristics’.