Macro Economy
Part One
Microeconomics is the study of how individuals and firms make economic choices among scarce resources. Micro economics also deals with the pattern of supply and demand, and the determination of price and the quantity of production in individual markets (Macroeconomics, 2008).
Law of supply and Law of Demand are the two laws that are closely related to microeconomics. The effect of supply and demand on pricing should be known before the discussion of the laws. As per the law of demand, when price is high, demand is low and when price is low, demand is high. From this principle we come to know that the amount of material or service that has to be supplied at a given price at a given point of time. The law of demand is for the consumer while the law of supply is for the seller or business which supplies products and services.
The law of supply deals with the amount of products or service a business enterprise will supply for a given price. When all other elements of the economy remains constant a business enterprise will charge a high price because if price is high there will be more providers. This is because high price attracts more providers who can make more profit from highly prices goods rather than sell huge quantity at a lower price. But if the price is low, it would attract only fewer providers making the total supply quantity low (Microeconomics: a general overview, 2005).
The extent to which a demand or supply curve reacts to a change in price is the curve’s elasticity. Elasticity varies among products because some products may be more essential to the consumer. Products that are necessities are more insensitive to price changes because consumers would continue buying these products despite price increases. Conversely, a price increase of a good or service that is considered less of a necessity will deter more consumers because the opportunity cost of buying the product will be too high. A good or service is considered to be highly elastic if a slight change in price leads to a sharp change in the quantity demanded or supplied. Usually these kinds of products are readily available in the market and a person may not necessarily need them in his or her daily life. On the other hand, an inelastic good or service is one in which changes in price witness only modest changes in the quantity demanded or supplied, if any at all. These goods tend to be things that are more of a necessity to the consumer in his or her daily life (Economics Basics: Elasticity, 2008).
When there is a change in the price of a product, there will be a change in the purchasing trend. The change in trend can be either an increase or decrease than the amount of purchase prior to the price change. This applies when the salary of a person increases. Though there is elasticity in the price of products, increase in the wages of a person results in increased buying, thus increasing the demand for a product in the market. Thus microeconomics affects the purchasing trend of a person (Labor Markets, Income Effect).
What are the main differences between microeconomics and macroeconomics? Provide an example of a microeconomic and macroeconomic phenomenon.
Microeconomics looks into the micro level and is concerned more about the factors that affect the decisions made by firms and individuals. Micro economy focuses on the dealings between the consumers and goods/service providers and analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of firms and households. Microeconomics is a bottom-up approach in analysing economy. Individuals who are interested to begin their own firm or one who is eager to know how the pricing of a particular product/service is performed will be interested in microeconomics.
Macroeconomics, on the other hand, looks at the macro level. It is concerned with the national economy as a whole and examines nationwide phenomena such as unemployment, national income, rate of growth, gross domestic product, inflation and price levels. Macroeconomics is a top-down approach in economy analysis.Individuals who is interested in macroeconomics would be able to describe about GDP or Gross Domestic Product or interpret why unemployment less than 7% is not a bad phenomenon.
Micro and macro economy though different, have many overlapping issues between the two. Hence they are not independent of each other. They are complementary. For example, increased inflation – macro effect, would cause the price of raw materials to increase for companies and in turn affect the end product’s price – micro effect, charged to the public. Citing another example, the current level of unemployment – macro effect, will affect the supply of workers which an oil automobile company can hire from. (Economics Basics: What Is Economics?, 2008) (What’s the difference between macroeconomics and microeconomics?, 2008).
Would you give an example of a microeconomic decision you’ve made at work or home? What factors contributed to making that decision?
The production of NANO car by TATA Motors in India can be taken as an example. Though the car is not launched in the market, the demand for this car is ensured due to the cheap price. I am a two wheeler user and wish to purchase a Nano as soon as it is launched because the car is fuel efficient and easy to park.
Would you give an example of how a macroeconomic phenomenon has impacted a personal or business decision of yours? In the end, what was the result of your decision?
The following macroeconomic phenomenon in the economy resulted in a change in my personal decision to travel by air. The macroeconomic phenomena are related to the energy crisis and the resultant fuel price hike (Macro phenomena) and how it affected my personal decision (micro phenomena). We were planning to make a vacation trip to Scotland in August and the Spice jet flight was booked in May. Flight tickets were received and we were looking forward for the trip. But by June mid, the fuel price hike news came and the flight was cancelled without any information. But I was adamant the trip should not be cancelled and went on for booking in Jetlite though an extra amount of Rs.3000 had to be paid. But again by the end of June we were informed that this Jetlite flight was also cancelled and scheduled it at a different time with a hike of Rs.3000. I had to cancel my trip since there was information that the price would be hiked and flights will be further cancelled.
In conclusion, micro economics and macro economics directly affects the life of people in terms of supply, demand and scarcity. This happens with the elasticity of the three factors that occurs as a result of rise in the price of goods, increase in wages and the non availability of goods. Microeconomics and macroeconomics are inter-related.
References
Economics Basics:Elasticity? 2008. Retrieved from
http://www.investopedia.com/university/economics/economics4.asp on August 25, 2008
Economics Basics: What Is Economics? 2008. Retrieved from
http://www.investopedia.com/university/economics/economics1.asp on August 25, 2008
Macroeconomics. 2008. Retrieved from http://financial-dictionary.thefreedictionary.com/Macro-economics. on August 25, 2008
Microeconomics: a general overview. 2005. Retrieved from
http://www.moneyinstructor.com/art/microoverview.asp on August 25, 2008
What’s the difference between macroeconomics and microeconomics? 2008. Retrieved from
http://www.investopedia.com/ask/answers/110.asp on August 25, 2008
Labor markets. Income effect. Retrieved from
http://spot.colorado.edu/~kaplan/econ2010/section7/section7-main.html on August 25, 2008.
