MICROECONOMICS AND
MACROECONOMICS
Chapter 5
MICROECONOMICS
• is the study of individual markets & sections of the
economy, rather than the economy as a whole
• It examines the different choices individuals, households & firms
• It examines what factors influence their choices
• It examines how their decisions affect the price, demand & supply of
goods/services in a market
• It examines how Governments influence consumption & production
MACROECONOMICS
• is the study of economic behaviour & decision making in the entire
economy, rather than just an individual market
• It examines the role of the government in achieving economic growth & human
development through the implementation of specific government policies
(fiscal, monetary & supply-side)
• It examines the role of the government in achieving price stability, low unemployment & a
stable Current Account balance on the Balance of Payments account
• It examines the interaction of the economy with the rest of the world through international
trade
SOME OF THE DIFFERENCES
BETWEEN MICRO- &
MACROECONOMICS
Microeconomics Macroeconomics
• Single market e.g. milk • Entire economy e.g. Singapore
• Price of a good/service • Average price levels in an economy
(inflation/deflation)
• Individual/market demand • Total demand in an economy
• Individual firm/market supply • Total supply in an economy
• Government intervention in a market e.g. cigarettes • Government intervention in the
• Reasons for differences in workers wages economy e.g income tax
• Unemployment & minimum wages
DECISION MAKERS & THEIR
CHOICES IN
MICROECONOMICS
• Consumers
• Which combination of goods/services do they value the most
• How to respond to changes in markets they consume in
• How much money to save, spend or borrow
• Firms
• Which combination of goods/service to supply
• How to best produce goods/services in order to meet their objective (usually profit
maximisation)
• How to respond to changing market conditions
DECISION MAKERS & THEIR
CHOICES IN
MICROECONOMICS
• Government
• Which policies will be most effective in addressing specific market failures
• Which industries/markets are essential & require government support
DECISION MAKERS & THEIR
CHOICES IN
MACROECONOMICS
• Consumers
• How to best respond to changing macroeconomic conditions such
as recessions or interest rate rises
• Firms
• How to best respond to changing macroeconomic conditions such as recessions,
interest rate rises or a low supply of labour
• Whether to sell their goods/services locally, nationally or internationally
DECISION MAKERS & THEIR
CHOICES IN
MACROECONOMICS
• Government
• Determining the best combination of policies that will help them to meet all of
their macroeconomic aims
• Multi national corporations (MNCs)
• Which countries to invest in
• How to best develop international advantages
• How to engage with the government & local workforce in a way that maximises
profit without harming the brand image