Microeconomics vs. Macroeconomics: An Overview

Economics is divided into two categories: mic𝕴roe♏conomics and macroeconomics. Microeconomics is the study of individuals and business decisions. Macroeconomics looks at the decisions of countries and governments.

These two branches of economics appear to be different but, in reality, they're interdependent and complement each other. Many overlapping issues exist between the two fields.

Microeconomics

澳洲幸运5开奖号码历史查询:Microeconomics is the stu💎dy of decisions made by people and businesses regarding the allocation of resources and the prices at which they trade goods and services. It considers taxes, regulations, and government legislat🧸ion.

Microeconomics focuses on supply and demand, and other forces that determine price levels in the economy. It takes a 澳洲幸运5开奖号码历史查询:bottom-up approach to analyzing the economy by attempting to understand human choices, dec𒊎isions, and the allocation of resources.

Microeconomics doesn't try to answer or explain what forces should take place in a market. Rather, it tries to explain what happens when there are changes in certain conditions.

Microeconomics examines how a company can maximize its production and capacity so it can lower prices and better compete. A lot of microeconomic informat☂ion can be gleaned from company financial statements.

Microeconomics involves several key principles, including but not limiꦺ🌳ted to:

• Supply, demand, and equilibrium: Prices are determined by the 澳洲幸运5开奖号码历史查询:law of supply and demand. Suppliers offer the same price demanded by consumers in a perfectly competitive market. This creates economic equilibrium.
• Production theory: This is the study of how goods and services are created or manufactured.
• Costs of production: The price of goods or services is determined by the cost of the resources used during production, according to this theory.
• Labor economics: This principle looks at workers and employers to understand patterns of wages, employment, and income. 

The rules in microeconomics f🐓low from a set of compatible laws and theorems rather than beginning with empirical study.

Macroeconomics

澳洲幸运5开奖号码历史查询:Macroeconomics studies the behavior of a country and how its policies impact the economy as a whole. It analyzes entire industries and economies rather than individuals or specific companies. This is why it's referred to as a top-down approach. It tries to answer questions such as “What should the rate of inflation be?” or “What stimulateꦇs economic growth?”

Macroeconomics analyzes how an increase or decrease in net exports impacts a nation’s capital account or how gross domestic product (GDP) is impacted by the 澳洲幸运5开奖号码历史查询:unemployment rate.

It focuses on aggregates and 澳洲幸运5开奖号码历史查询:econometric correlations. This is why governments and their agencies r📖ely on macroeconomics to formulate economic and fiscal policy. Investors who buy interest-rate-sensitive securities should keep a close eye on monetary and fiscal policy.

澳洲幸运5开奖号码历史查询:John Maynard Keynes is often credited as the founder of macroeconomics because he initiated the use of monetary aggregates to study broad phenomena. However, some economists 澳洲幸运5开奖号码历史查询:dispute his theories and many Keynesians disagree on how to interpre❀t his work.

Investors and Microeconomics vs. Macroeconomics

Individual investors may be better off focusing on microeconomics, but macroeconomics can't be ignored altogether. 澳洲幸运5开奖号码历史查询:Fundamental and value investors may disagree with technical investors about the proper role of economic a♊nalysis. It's more likely that microeconomics will impact individual investments but macroeconomic factors can affect entire portfolios.

Warren Buffett famously stated that macroeconomic forecasts didn’t influence his investing decisions. When asked how he and his partner Charlie Munger choose investments, Buffett said, “Charlie and I don’t pay attention to macro forecasts. We have worked together now for 54 years, and I can’t think of a time we made a decision on a stock, or on a company...where we’ve talked about macro.” Buffett also has referred to macroeconomic literature as “the funny papers.”

John Templeton, another famously successful value investor, shared a similar sentiment. “I never ask if the market is going to go up or down because I don’t know, and besides, it doesn’t matter,” Templeton told Forbes in 1978. “I search nation after nation for stocks, asking: ‘Where is the one that is lowest priced in relation to what I believe it’s worth?’”

The Bottom Line

Microeconomics and macroeconomics𝐆 are related but separate approaches to studying the economy. Microeconomics is concerned with the actions of individuals and businesses. Macroeconomics focuses on the actions that governments and countries take to influence broader economies. Both will impact an in🍸vestment portfolio but most investors focus primarily on microeconomic considerations when making their investment decisions.