Microeconomics vs. Macroeconomics

Microeconomics vs. Macroeconomics
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  • 0:01 What Is Economics?
  • 1:04 Microeconomics
  • 3:27 Macroeconomics
  • 5:13 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

In this lesson, we learn how economics touches every aspect of human life. Focusing on the central ideas of scarcity and utility, we see how economics plays out in its two largest fields, microeconomics and macroeconomics.

What Is Economics?

Just like medicine or engineering, economics is an applied science that exists to help humanity tackle a very specific problem. Medicine treats disease, engineering builds better structures, and economics treats the idea of scarcity. Scarcity is a very real problem in our society, and frankly, it's one that we're not likely to ever get rid of. Scarcity states that there are finite supplies of everything. Land? Finite. Air? Finite. Time? Very finite.

Luckily for us, we have economics to help us figure all that out. Needless to say, that's a lot of information to process, since scarcity leaves its mark on everything. As a result, economists have divided the field up into countless specialties, from labor economics to international economics and even religious economics. However, the two largest divisions are by far the most important: microeconomics and macroeconomics.

Microeconomics

At its core, microeconomics is the study of how scarcity causes the actions of individuals, families, and companies. By the way, by companies, I mean any group of people acting in a collective economic sense, whether it's a non-profit organization, a local government, a college club, or even a traditional for-profit business. You'll sometimes see the term 'firm' used instead, but it's the same thing.

Economic thought, at a very base level, goes into almost every decision you make. Do you buy pizza or go for a nice steak dinner? The answer is dependent on the amount of utility you gain, which is literally a measure of how useful something is to you. If it's just you and some friends, you'd probably order the pizza. If it's a cute date, chances are you're going to be eating some sirloin. Just hope that your date isn't a vegetarian.

More than just that, microeconomics helps companies plan their investments. We can find out how many burgers our fast food place would have to sell in order to justify another location. In fact, this is related to a word you'll see a lot in microeconomics. The marginal impact of something is how much it would cost to do just 1 more unit of something.

For breakfast sandwiches in the fast food drive thru, this could be simply a few cents. For a factory running at full capacity, it could mean building an entire new location. We can also determine at what point a burger becomes profitable. If it costs me a dollar to produce a burger, economics tells me I need to sell that burger for more than just a buck.

Macroeconomics

Figuring out how much a burger costs or whether your Friday night dinner companion would prefer steak or pizza is important, but economics is useful on a much larger scale, too. Macroeconomics is the study of how scarcity causes the actions of whole economies, especially on an international level. That steak isn't going to do you a lot of good if you're unemployed, and macroeconomics helps governments prevent unemployment.

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