Microeconomics and macroeconomics are interdependent. Microeconomics takes a close-up view of the economy and concentrates on the choices made by individual, consumers. producers, farmers and investors. Macroeconomics looks at the economy from a broader perspective and considers it overall performance.
The classical approach to macroeconomics is that individuals and firms act in their own best interest. The wages and prices adjust quickly to achieve equilibrium in the free market economy. The Keynesian approach to macroeconomics is that wages and prices do not adjust rapidly and unemployment may remain high for a long time. The Keynesians are of the view that government intervention in the economy can help in improving economic performance.
The micro and macroeconomics are interdependent. They are complementary and not conflicting. We cannot put them in water tight compartments. Both these approaches help us in analyzing the working of the economy. if we study one approach and neglect the other, we are considered to be only half educated We should integrate the two. approaches for the successful analysis of the working of economic system. The macro approach should be applied where aggregate entities are involved and micro approach when individual cases are to be examined. If we ignore one and lay emphasis on the other, it will lead to wrong or inadequate conclusions.
This is general distinction made for the sake of understanding. It is hard to clearly demarcate the contents and areas of the both because these two approaches depend upon each other.
The following points may clear the issue.
- Microeconomics studies small and individual units of the economy which later on becomes a base to study the economy as a whole.
- Macroeconomics gives an overall picture of the economy which may be true as a whole but untrue as a part. When an economy is prosperous some of the economic units may be poor at that time. Microeconomics can diagnose and rectify the problem. Macroeconomics may not solve the problem here.
- While an economy is in depression. some of economic units may earn huge profits. Macroeconomics fails to analyse the activities and behaviour of these units. Microeconomics will help here.
- The problem belonging to macroeconomics like inflation and unemployment etc. have also micro aspects and the problems belonging to microeconomics like price mechanism have also macro aspects.
- Fluctuation in average price level like inflation is studied in macroeconomics. Microeconomics assumes it fixed and studies no determination of prices individually. In this way we see how problem is viewed by two ways.
- Problems arising in international trade. particularly the problem of determination of rate of exchange are discussed in macroeconomics, but some problems as determination of prices of potential exports and imports can also be studied in microeconomics.
It is clear that there is need of integration of two approaches for economic analysis. There is no conflict between these approaches and both are complementary to each other. It is suitable to use both approaches at the same time to solve economic problems.