What is the difference between microeconomics and macroeconomics?
Microeconomics is the study of individual 'economic agents' or 'micro' players in the economy. It focuses on consumers choosing their optimum combinations of goods to buy, given their tastes and incomes, and producers trying to maximize their profits while keeping costs low. It examines individual markets of demand and supply and the functioning of particular sectors of the economy.
Macroeconomics, on the other hand, deals with aggregate economic variables of an economy as a whole. It takes into account various interlinkages between different sectors and sees the economy as a combination of four sectors: households, firms, government, and external sector. It studies phenomena like inflation and unemployment that affect the entire economy.
The fundamental difference is that microeconomics examines specific sectors assuming the rest of the economy remains the same, while macroeconomics studies the economy as an interconnected whole.
Explanation
The textbook clearly distinguishes between microeconomics and macroeconomics. Microeconomics deals with individual economic agents (consumers and producers) and their motivations, studying individual markets. Macroeconomics, which emerged as a separate subject in the 1930s due to Keynes, deals with aggregate variables and interlinkages between sectors, examining economy-wide phenomena like inflation and unemployment.