Macro and microeconomics are the two vantage points from which the economy
is observed. Macroeconomics looks at the total output of a nation and the way
the nation allocates its limited resources of land, labor and capital in an attempt
to maximize production levels and promote trade and growth for future
generations. After observing the society as a whole, Adam Smith noted that there
was an "invisible hand" turning the wheels of the economy: a market force that
keeps the economy functioning.
Microeconomics looks into similar issues, but on the level of the individual people
and firms within the economy. It tends to be more scientific in its approach, and
studies the parts that make up the whole economy. Analyzing certain aspects of
human behavior, microeconomics shows us how individuals and firms respond to
changes in price and why they demand what they do at particular price levels.
Micro and macroeconomics are intertwined; as economists gain understanding of
certain phenomena, they can help nations and individuals make more informed
decisions when allocating resources. The systems by which nations allocate their
resources can be placed on a spectrum where the command economy is on the
one end and the market economy is on the other.
The market economy
advocates forces within a competitive market, which constitute the "invisible
hand", to determine how resources should be allocated. The command economic
system relies on the government to decide how the country's resources would
best be allocated.
In both systems, however, scarcity and unlimited wants force
governments and individuals to decide how best to manage resources and
allocate them in the most efficient way possible. Nevertheless, there are always
limits to what the economy and government can do.
Economics Basics: Production Possibility Frontier (PPF), Growth, Opportunity Cost, and Trade.
