Differences Between Micro and Macro Levels of Economic Performance (Essay Sample)

RELATIONSHIP BETWEEN THE MICRO AND MACRO LEVELS OF ECONOMIC PERFORMANCE
Relationship between the micro and macro levels of economic performance.
The economic theory developed considerably between the existences of Adam smith, the father of economics, the wealth of nations and the great depression did not give a clear-cut distinction of the micro and the macro levels. In this development, economists assumed that the markets were in equilibrium, supply was equal to demand, or that in cases of economic crises, then the prices would quickly return to the equilibrium level. In other words they believed that the study of individual markets would adequately explain behavior of the so-called aggregate variables such as output and unemployment.
According to Rodrik (2011), Economics was defined as the study of how human beings organized the production, distribution and consumption of goods and services until the great depression of 1930s. It is after this that the industrial revolution began giving birth to micro and macro levels of economic performance. This paper looks at the different aspects and attributes of the two levels to explain their relationship.
Keynes is described as the founder of macroeconomics as he introduced the simultaneous consideration of the equilibrium in three interrelated sets of markets for goods, labor and finances CITATION Dan11 \l 1033 (Rodrik, 2011). Keynes further introduced the disequilibrium economics which forms a study of departures from the equilibrium explicitly.
Economists look at the economic performance in two realms. There is what can be referred as the bigger picture and the smaller picture of the overall analysis going by the aspects and the tools used in each of the two levels. Macro economics is the bigger picture as this is entirely concerned with how the entire economy works. This involves the study of several economic attributes such as employment, inflation, the gross domestic product among others. On the other hand, microeconomics, the smaller picture, is entirely concerned with the interaction between the demand and the supply in single markets. In simpler terms, micro economics is the study of individual behavior and business decisions while as for macroeconomics the focus is on the role and position of the government decisions and how these affect the economy. There are major distinguishing aspects in both scenes.
The relationship between macroeconomics and microeconomics is somewhat obvious in that the aggregate production and consumption levels results from choices/decisions made by individual households and firms with some macroeconomic models making this connection explicitly. It is important to note that there is no economic conflict despite the two approaches,
In macroeconomics, the nation is the typical subject; that is how all markets interact so as to create a bigger phenomenon which is referred to as the aggregate variables. Conversely, the object of analysis in microeconomics is a single market. There is no focus on the interactions of this market with others at all. The influence of different aspects is wholly based on it. For example, if price rise in the oil and automobile industry are driven by the demand and supply changes. The role of the government in the macro view may be illustrated by its role in contributing to or dealing with inflation. Macroeconomics often extends to the international sphere as the domestic markets are linked to the international markets in several ways. These are; trade, capital flows and investment among others. Similarly, microeconomics can have an international dimension in that single markets are not just confined to single countries, which may be illustrated with the global market for petroleum.
The relationship between the two aspects may further be looked at based on their models. Microeconomics is built on the models of the consumer or the firms which make the decisions on what to buy, produce and sell with the assumption that the decisions made result in perfe...