Micro Versus Macro Economics

Marc Schwind

November 17, 2007

Unit 1 IP

Ladies and gentlemen, today, I would like to discuss the major differences between

microeconomics and macroeconomics and how both these fields of study impact and

influence decisions made by me in the work and home environments.

Microeconomics is the study of decisions that people and organizations make

regarding the allocation of scarce resources and prices of goods and services (Perloff,

2007). Microeconomics focuses on the patterns of supply and demand and the

determination of price and also output in individual markets. These decisions are also

influenced by government. It is the smaller or micro picture of economics at the

individual, household and company level.

Macroeconomics is the bigger picture of economics. It studies the aggregate or

combined impact of certain consequences such as inflation, unemployment and economic

growth that were the result of social decisions in both the public and private sectors. It

examines whole economic systems and the interaction of the different areas such as

inflation and unemployment.

An example of a microeconomic phenomenon is the impact of a change in the price of

a good or service on the spending decisions of a household. Also changes in the

unemployment rates will influence a decision to stay or leave a present position.

Examples of macroeconomic phenomenon include looking at changes in interest rates,

employment and unemployment numbers, government economic policies and trade on

global economies. I would like to discuss an example of a microeconomic decision that was made in

the home environment. The decision was to file bankruptcy and relieve ourselves of large

amounts of debt incurred because of medical expenses due to infertility issues. One factor

was our decision to have my wife leave work to stay at home with our children. This

eliminated a source of income for us but it was the right thing to do. As a family, we had

to decide to allocate our scarce resource of discretionary income towards day to day

expenses rather than try to pay down debt that would have taken years to pay back. We

sacrificed a good financial history and immediate future credit to regain control of our

financial future. The bankruptcy influenced our buying tendencies and sparked a move

toward trimming the fat and saving where we could. In the long run, we have improved

our financial standing and we were able to have children. There were trade-offs, but the

ends justified the means.

An example of a macroeconomic decision that impacted a personal decision can be

found in my decision to remain with my present company rather than accept a new

position with another firm. The phenomenon was the impact on the economy and

employment of the attacks on the World Trade centers and the Pentagon. I was in the

process of accepting a new position with a new company when the attacks occurred. The

immediate effect on the aviation industry caused me to pause and wait to see how things

would change. I did not accept the new offer and chose to remain with my present

employer. The end result was that the employer I was leaving for ended up going out of

business and I would have been unemployed. I remained with my company and have

since been promoted and upgraded to captain.

Microeconomics and macroeconomics affect all of us on a daily basis and influence

how we live our lives. Decisions based on these principles happen every day in home and

work environments and also on the global stage with world economies.

Reference:

Perloff, J. M. (2004). Microeconomics ( 3rd ed.). New York: Pearson Addison Wesley.