Microeconomics is the study of individual economic activity. Unlike macroeconomics, microeconomics does not attempt to study the broad national interest or even global economic issues. The micro studies that are most relevant to an individual consumer's personal budget are consumer price index (CPI) surveys and personal income estimates at the time of a recession. In fact, even though it is called microeconomics, the modern macroeconomic model, which has been in place since World War II, is based on micro-level data.
Microeconomics studies how people respond to changes in general economic conditions. These changes may be reflected in unexpected increases or decreases in consumer spending for example. Changes in investment for example, can affect both consumers and businesses. A change in the level of general prices can lead to widespread increases in consumer spending, and a drop in business investment, or both.
Some macroeconomic indicators, which are derived from this data, are used to determine consumer outlays, including income and expenditure estimates, and inflationary adjustments. Changes in spending patterns can affect businesses large and small. These businesses depend on their revenue sources to keep them going, and a fall in one of these sources of revenue could mean the business will go out of business.
A major part of microeconomics is the assessment of changes in the supply of money. When money is made available by government or banks for any purpose, it changes hands nine times. This includes three changes in the supply of base money – the Federal Reserve, the Bank of Japan, and the United States Federal Reserve. The purchasing power of money affects all economic activity. Economic textbooks and macroeconomic theories generally reflect the theory of demand and supply.
Microeconomics is often confused with microeconomics. Although they may follow somewhat the same models of production and trade, microeconomics is usually devoted to a particular industry or economic group. There are many differences between micro and macroeconomics, however. One example is that micro-economics concerns itself with the behavior of consumers in response to changes in spending patterns, while macro-economics concentrates on national interest rates and the balance of trade. Also, unlike micro-economics, macro-economics does not attempt to incorporate important external factors affecting the economy, such as the growth of oil prices and inflation.
The study of economic activity through the lenses of micro and macro economics helps us understand how different economic groups throughout an economy react to changes in the money supply, interest rates, and other economic factors. It also shows how consumers and businesses respond to these changes in order to maximize their profits. The concepts of price formation, business cycles, and consumption decisions are . . . . . . deeply affected by these economic forces. The concepts of macroeconomics are essential for a complete analysis of the movement of the economy through the different economic influences mentioned above.