[Toefl IBT] RC ex. 001 micro and macro - economics

  It is common to break down Economics into two broad fields - microeconomics and macroeconomics. History can help explain the names of these disciplines. The word "economics" is rooted in Greek, although the ancient Greeks did not actually study a subject called "economic." The word is derived from oikos, which means "household" or "family", and nomos, which translates to rule or law. Therefore "economics" is probably most accurately translated as "rules for managing a family."

  To understand how the word"economics" developed in meaning to what we understand today, it is necessary to look back to the 15th century. By that time, the countries of the world had become so interdependent and nation markets had grown so much that it had become essential for governments to develop carefully-thought-out policies to handle markets. This led several prominent academics to conclude that governments should concentrate on their countries' markets as a whole. Toward the end of the 19th century, academic approaches to economics became much more analytical and focused. as economists began to look more closely at the various individual parts that comprise a "micro" translate to "small", and it implies that microeconomists study aspects that are small when compared to a nation's economy as a whole. 

  By the time the Great Depression struck in 1929, many scholars had become dissatisfied with the analytical 'micro' approach to economics. And by the mid-twentieth century, it had become clear that, in order to understand national economies and markets, it was imperative to place equal focus on macroeconomics and microeconomics. A microeconomist studies the choices made by people, businesses and government with respect to the allocation of resources, such as land or labor, and the prices of goods and services. Microeconomics concentrates on supply and demand and any other factors that help set price levels for certain companies in certain industries. Aspects such as what causes demand or supply to increase or decrease; what effect price changes have on sales; how government can control prices and quantities in a market; what causes shortages and surpluses or products - these are the things microeconomists look at. For example, a microeconomicst would examine how a calculator-producing company could maximize its output levels so it could offer calculators at the lowest price possible, and therefore be an efficient competitior in the calculator industry.

  Macroeconomists, on the other hand, study economies as a whole. Instead of looking at certain firms, macroeconomists analyze entire industries and national economies. This involves studying broad economic features such as Gross Domistic Product, which indicates a country's total output in a given year, and how that output is influenced by changes in unemployment, national income, economic growth, price levels and inflation. For example, a macroeconomist would look at an increase or decrease in consumer spending and determine how that would affect a country's Gross Domestic Product and unemplyment rate. 

  These two broad disciplines of Economics are very different, so it is easy to forget that they are unmistakably liked and in fact complementary of one another, since there are many aspects that overlap microeconomics and macroeconomics. For example, the macroeconomic affect of rising national price levels would cause an increase in the cost of raw materials used in production, and would eventually affect the price consumers pay for the goods produced with those raw materials-the microeconomic effect. Ultimately, the most fundamental difference between the two is that microeconomics approaches the economy from the 'bottom-up', while macroeconomics start its analysis from the 'top-down'. Both micro and macro-economics should be studied together with equal focus in order to understand business behavior and consequences.