Two branches of economics
Economics is commonly divided into two main branches:
- Microeconomics studies the behaviour of individual consumers, workers and firms and how they interact in specific markets. It analyses how prices are determined, how resources are allocated through the price mechanism, and how market structures such as perfect competition and monopoly affect outcomes.
- Macroeconomics examines the economy as a whole. It looks at aggregates such as national income, inflation, unemployment and economic growth and studies how government policies (fiscal, monetary and supply‑side) influence these variables.
Both microeconomics and macroeconomics are interrelated. Aggregate demand and supply in the macro economy are built on individual decisions by households and firms, while macroeconomic conditions such as interest rates and inflation influence microeconomic decisions.
| Aspect | Microeconomics | Macroeconomics |
|---|---|---|
| Focus | Individual markets (e.g. labour, goods) | Whole economy |
| Key variables | Price, quantity, costs, revenue | GDP, inflation, unemployment, exchange rates |
| Policy tools | Taxes/subsidies on specific goods, regulation | Fiscal policy (government spending and taxation), monetary policy (interest rates), supply‑side policy |
| Examples of analysis | Demand and supply of smartphones, wage determination in the labour market | Causes of economic growth, impact of inflation, causes of unemployment |
Understanding both micro‑ and macroeconomics is essential for interpreting real‑world events. For example, a rise in unemployment (macroeconomics) may affect demand in the market for cars (microeconomics), while a sharp increase in oil prices (microeconomics) can contribute to inflation at the national level (macroeconomics).
