Micro? Macroeconomics? What're The Differences?
Microeconomics is a subject that study, research, and analyze primary in the choices of individuals, households, business owners.
For instance, business owners are more likely to hire more workers and purchase new equipment to increase their production if they think they can gain much more income by expanding their business. For individuals, they are more likely to choose the high-income jobs as possible as they can and pay for their living as low as they can. For households, they have to communicate with family members to make choices on many expenses or travel plans. Overall, microeconomics assumes that every individual, business owner chooses to do their best interest. If their choices are not in this assumption, the choices could become far harder to study. Despite analysis under the assumption is not 100% accurate, it's still the major part of human nature.
Macroeconomics, on the other hand, is a subject that study, research, and analyze primary in the choices of countries and the economy as a whole.
For instance, a country involves many different entrepreneurs, households, and individuals. Also, the government is consists of members from many different households and individuals.
The whole economy is more likely to grow when most business owners hire more workers and purchase new equipment to increase their production. For business owners, they are more likely to supply more products in which customers are willing to buy more. Nowadays, smartphones are supplied and demanded in every city. In the 1800s, it almost impossible to make immediate communications if the distances are too far away. The technology development changes the demand as a whole and changes the choices of every business owner. It's an example of how micro and macroeconomics interact with each other. Even more, for households, they made their travel plans based on their budgets, the budgets mostly depend on their income, and the income depends on the salaries that offer by business owners. The most important part is that not everyone and every business owners are all successful, which means some individuals and business owners may fail and lose. Normally, it's happening everyday. Instead of analyzing each reason why they fail, macroeconomics focus on the whole growth. After all, the planet does not stop its rotation while each business stops. And again, despite analysis under the assumption is not 100% accurate, it's still the major part of human nature.
Briefly summarize, macroeconomics and microeconomics are not two separate subjects, or rather they are two complementary perspectives on the overall subject of the economy.
Micro and Macro: The Economic Divide (From https://www.imf.org/external/pubs/ft/fandd/basics/bigsmall.htm)
The author G. Chris Rodrigo is a visiting scholar in the IMF’s Research Department. He wrote that "Economics is split between analysis of how the overall economy works and how single markets function"(Rodrigo, 2020). As I priorly mentioned, macroeconomics and microeconomics are not two separate subjects, or rather they are two complementary perspectives on the overall subject of the economy. This author starts with the physical world to explain the concept of micro and macroeconomics. He said that "Physicists look at the big world of planets, stars, galaxies, and gravity. But they also study the minute world of atoms and the tiny particles that comprise those atoms." To give the readers another way to think and to understand the differences. And the most important part of this article is that he gives an explanation of why they divide and how they differ. About why the divide, he said that "It was not always this way. Back in the late 18th century until the Great Depression, economics was the study of how human societies organize production." There was no separation into microeconomics and macroeconomics during the period of the official economic theory developed from Smith’s The Wealth of Nations and the Great Depression. "In the early 20th century, macroeconomics as a distinct discipline began with Keynes’s masterpiece whereas early economics concentrated on equilibrium in individual markets, Keynes introduced the simultaneous consideration of equilibrium in three interrelated sets of markets for goods, labor, and finance. His approach was taken up by other leading economists and developed rapidly into what is now known as macroeconomics."(Rodrigo, 2020)
How they differ？It's has always been controversial. The microeconomic theory evolved how prices are determined. Macroeconomics, on the other hand, is rooted in empirical observations that existing theory could not explain. But those methods and concepts are all great tools for us to better analyze economics activities. "Microeconomics and macroeconomics are not the only distinct subfields in economics. Econometrics, which seeks to apply statistical and mathematical methods to economic analysis, is widely considered the third core area of economics. Without the major advances in econometrics made over the past century or so, much of the sophisticated analysis achieved in microeconomics and macroeconomics would not have been possible."(Rodrigo, 2020)
Sunk Cost
As the word "sunk", it's a cost that you already pay in the past. The cost could be the time, the money, or any other forms of cost. When we mention the sunk cost, we always facing some choices. For instance, while you are traveling, you book accommodations for your stay near the places you visit. Assume you prepaid the cost, but when you check-in and open the door of your room, you find it not as clean as the pictures you saw online where you booked. What would you do? Do you stay for your sunk cost? Or do you just ignore the cost and getting out to find another one? It's an example of the sunk cost because you make the choices after a big nonrefundable payment. However, if the cost is refundable then it is not sunk and you are not making the choice in the condition of sunk cost.
Marginal Cost
In the previous accommodation case, we focus on how the nonrefundable payment affects the choices we made. Now we look at the margin of the payment. Assume that you ignore the sunk cost and to find another hotel for your stay, the key point here is that you are more likely to choose the other cheaper, clear, or even more expensive accommodation not to choose between sleep in the street or sleep in a hotel.
How does the sunk cost differ from a marginal cost?
As we know that in the accommodation case, we normally made the choice between ignoring the cost and getting out to find another one, not between sleeping in the street or sleeping in a hotel. In this case, the first choice is a yes or no choice, ignore the sunk cost or not. The second choice is a numeral question, how many or how much should I pay for the extra payments of my travel plan? To make it clear, the first choice is made under the condition of the sinking cost, to continue or not. Although it is a conceptual difference between marginal cost and sunk cost, there is a basic core value is the same, the opportunity cost. Both marginal and sunk cost is based on the concept of opportunity cost and scarcity, which means we all have to make the choice and tradeoff. Furthermore, both of them have to forgo some alternative use of time or money.
Marginal Cost Are Our Daily Life
Under the law of diminishing marginal utility, we rarely make all-or-nothing choices, just like the previous case. I remember the first time I stay in a 5-star hotel, I did some homework before I booked. I drew the curve of the comparative advantages and all of the three hotels are under the budget of US$600.
The hotel A(Point A) has the best facilities(gym, swimming pool, car parking, 24-hour security, sea view), hotel C offers the best food dishes in their roof restaurant, the facilities and the food of hotel B are somewhere between hotel A and hotel B. Now I have to choose on the scarcity of my time and money since I only have a two-day trip, one-night accommodation, and the limitation of my budget. But the truth is, I don't have the energy and time to use all those facilities. I also can not just eat all the time during the time I stay in the hotel, it's unhealthy and ridiculous. So I prefer to choose somewhere in between not the extreme options which are a little more or a little less on food or hotel facilities.
Reference
(n.d.). Retrieved from https://cnx.org/contents/aWGdK2jw@11.330:6RH0nLs4@8/What-Is-Economics-and-Why-Is-It-Important
Rodrigo, G. C. (2020, February 24). Finance & Development. Retrieved from https://www.imf.org/external/pubs/ft/fandd/basics/bigsmall.htm
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