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Micro and macro economics

Interdependence between micro and macro economics

Micro and macro-economics are different in their approaches:
- Micro studies the individual units of the whole economy whereas, Macro deals with the aggregates and sub-aggregates related to the whole economy
- The objective, subjective matter, assumptions etc, of micro economics are different from those macro-economics. But micro and macro are independent.
- The objective of the study of economic can’t be fulfilled by the study of only one, micro and macro.
- They are independent on each other because the parts affect the whole and the whole effects the parts.
- A general economy covers the both micros and macros.
- It should explain prices, output, incomes, behavior of individual firm and industry and the aggregates of the individual variables.  

Dependence of micro on macro economics

-          Micro economics analyzes problem and behavior of small units of the economy. All micro economic variables are fraction of macro-economic variables.
-          Micro economics also analyzes how a particular firm determines the wages of labour. But the firm cannot determine the wage rate independently; it has to study the wages given by other firms of the economy.
-          Example: - A particular commodity produced by firm
Price, consumption, wage, labour etc are analyzed under micro economics. Microeconomics plays an important role in the study of these aspects of microeconomics.
o   We know that price of commodity is determined by market demand and market supply.
o   The price determination of that goods also depend as goods produced by other firm. Quantity and nature, (cost of production) of commodities etc.
o   Similarly the price of product and the quantity sold also depend upon the national income, total employment, and aggregate effective demand.

Dependence on macro on micro economics

-          Macro-economic studies the economy as a whole.
-          For eg; general price level, National Income, employment etc from the subject matter of macro-economics. But the total is made up of parts.
-          The NI is the sum of total income of individual households, firms and industries.
-          Thus, it can’t be studied without the perfect information of the factor incomes such as rent, wages, interest and profits.
-          The general price level is the averages of all prices of individual goods and services.

Thus, the aggregate and averages that are studied in macroeconomics are nothing but aggregates and averages of individual quantities which are studied in micro economics.
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