Microeconomics and Macroeconomics
Microeconomics is the study of how the individual participants in the economy interact with one another. Participants include consumers, firms, workers, savers, investors, and others. These participants interact in the marketplace. Consumers, for example, seek to purchase the goods and services that they need for the lowest possible price. Firms, on the other hand, seek to produce goods and services that generate the largest possible profits. Workers offer their services to employers and hope to earn the highest possible wage. And so it goes. Microeconomics examines these behaviors in some detail.
You are an important part of the microeconomy. Suppose you wake up one Saturday morning and decide to have breakfast with friends at Betty's Diner. You and your friends each order the breakfast combination—two eggs, bacon, pancakes, biscuits, and a pot of coffee for the table. From the consumer's perspective, the $5 per meal purchase was an excellent use of your money.
Let's take a look at the same marketplace activity from the "other side" of the market— from the perspective of Betty, the owner of the diner. In the microeconomy Betty represents the producer. Betty must calculate all of her costs in the production of the breakfast combination—the cost of the food, the wage of the waitress, the rent on the diner itself, and all costs for utilities such as electricity. To stay in business Betty has to earn a profit from the sale of her meals, and this can only be accomplished if her total revenues are greater than her total costs.
The simple act of buying a breakfast at Betty's Diner illustrates the microeconomy in action. That is, it shows the interaction of a consumer and a producer in the marketplace. Much of the study of microeconomics deals with decisions of buying, selling, or producing goods or services.
Macroeconomics is the study of how the overall economy functions. Major macroeconomics topics include changes in price levels in the economy, and increases or decreases in unemployment. Macroeconomics also deals with changes in aggregate supply (the total supply of goods and services produced in the economy) and aggregate demand (the total demand for goods and services). National policies to stabilize the economy and to promote economic growth are also central to the study of the macroeconomy.
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