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Dhvani Bhavsar - 100705803
Spencer Norris - 100615643
Jeremy Costello - 100709400

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Welcome to Microeconomics and Macroeconomics

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Welcome to Microeconomics and Macroeconomics

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Microeconomics and Macroeconomics is the difference between what type of economics is being studied.

Microeconomics in specific is "the dealing with economy in smaller units", it's the study of economical behavior within households, firms and their interaction for goods and services.
Macroeconomics is the study of the total economy for example inflation, business cycles, unemployment and economic growth.

This padlet will help you understand the more in depth of why we need microeconomics and macroeconomics.

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Investopedia's website takes on a overview of Macroeconomics vs Microeconomics, briefly mentioning how the two may be different but are completely interdependent on each other. It then goes on to mention the two as their individual descriptions, explaining how Microeconomics ties in to Demand, Supply and Equilibrium, Production Theory, Cost of Production, and Labor Economics. The unique part of the website explains how investors are within Macroeconomics and Microeconomics.

The reason we chose this website is because the website talks about how Microeconomics vs Macroeconomics are used for investors. The most interesting piece of information we had gotten was how much microeconomics will affect a individual investment proposal. The website mentions that

"There may be some disagreement between fundamental (particularly value) and technical investors about the proper role of economic analysis, but it is more likely that microeconomics will affect an individual investment proposal." (Investopedia Staff, 2019).

This quote makes us want to read more into how investors are affected by how they think of microeconomics and macroeconomics.

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Microeconomics vs. Macroeconomics: An Overview

Economics is divided into two categories: microeconomics and macroeconomics. Microeconomics is the study of individuals and business decisions, while macroeconomics looks at the decisions of countries and governments.

Though these two branches of economics appear different, they are actually interdependent and complement one another. Many overlapping issues exist between the two fields.

Key Takeaways

Microeconomics

Microeconomics is the study of decisions made by people and businesses regarding the allocation of resources, and prices at which they trade goods and services. It considers taxes, regulations, and government legislation.

Microeconomics focuses on supply and demand and other forces that determine price levels in the economy. It takes a bottom-up approach to analyzing the economy. In other words, microeconomics tries to understand human choices, decisions, and the allocation of resources.

Having said that, microeconomics does not try to answer or explain what forces should take place in a market. Rather, it tries to explain what happens when there are changes in certain conditions.

For example, microeconomics examines how a company could maximize its production and capacity so that it could lower prices and better compete. A lot of microeconomic information can be gleaned from company financial statements.

Microeconomics involves several key principles, including (but not limited to):

Demand, Supply and Equilibrium: Prices are determined by the law of supply and demand. In a perfectly competitive market, suppliers offer the same price demanded by consumers. This creates economic equilibrium.

Production Theory: This principle is the study of how goods and services are created or manufactured.

Costs of Production: According to this theory, the price of goods or services is determined by the cost of the resources used during production.

Labor Economics: This principle looks at workers and employers, and tries to understand patterns of wages, employment, and income.

The rules in microeconomics flow from a set of compatible laws and theorems, rather than beginning with empirical study.

Macroeconomics

Macroeconomics, on the other hand, studies the behavior of a country and how its policies impact the economy as a whole. It analyzes entire industries and economies, rather than individuals or specific companies, which is why it's a top-down approach. It tries to answer questions such as "What should the rate of inflation be?" or "What stimulates economic growth?"

Macroeconomics analyzes how an increase or decrease in net exports impacts a nation's capital account, or how gross domestic product (GDP) is impacted by the unemployment rate.

Macroeconomics focuses on aggregates and econometric correlations, which is why governments and their agencies rely on macroeconomics to formulate economic and fiscal policy. Investors who buy interest-rate-sensitive securities should keep a close eye on monetary and fiscal policy.

John Maynard Keynes is often credited as the founder of macroeconomics, as he initiated the use of monetary aggregates to study broad phenomena. Some economists dispute his theories, while many Keynesians disagree on how to interpret his work.

Investors and Microeconomics vs. Macroeconomics

Individual investors may be better off focusing on microeconomics, but macroeconomics cannot be ignored altogether. Fundamental and value investors may disagree with technical investors about the proper role of economic analysis. While it is more likely that microeconomics will impact individual investments, macroeconomic factors can affect entire portfolios.

Warren Buffettfamously stated that macroeconomic forecasts didn't influence his investing decisions. When asked how he and partner Charlie Munger choose investments, Buffett said, "Charlie and I don't pay attention to macro forecasts. We have worked together now for 54 years, and I can't think of a time we made a decision on a stock, or on a company ... where we've talked about macro." Buffett also has referred to macroeconomic literature as "the funny papers."

John Templeton, another famously successful value investor, shared a similar sentiment. "I never ask if the market is going to go up or down because I don't know, and besides, it doesn't matter," Templeton told Forbes in 1978. "I search nation after nation for stocks, asking: 'Where is the one that is lowest priced in relation to what I believe it's worth?'"

Can Macroeconomic Factors Affect My Investment Portfolio?

Yes, macroeconomic factors can have a significant influence on your investment portfolio. For example, the Great Recession of 2008-09 and accompanying market crash were caused by the bursting of the U.S. housing bubble and subsequent near-collapse of financial institutions that were heavily invested in U.S. subprime mortgages.

For another example of the effect of macro factors on investment portfolios, consider the response of central banks and governments to the pandemic-induced crash of spring 2020. Governments and central banks unleashed torrents of liquidity through fiscal and monetary stimulus to prop up their economies and stave off recession, which had the effect of pushing most major equity markets to record highs in the second half of 2020 and throughout much of 2021.

What Is a Global Macro Strategy?

A global macro strategy is an investment and trading strategy that centers around large macroeconomic events at a national or global level. "Global Macro" involves research and analysis of numerous macroeconomic factors, including interest rates, currency levels, political developments, and country relations.

What Is the Basic Difference Between Microeconomics and Macroeconomics?

Microeconomics is the study of how individuals and companies make decisions to allocate scarce resources. Macroeconomics is the study of an economy as a whole.

How Do Core Concepts of Microeconomics Such as Supply and Demand Affect Stock Prices?

Microeconomic concepts such as supply and demand affect stocks prices in two ways: directly and indirectly.

The direct effect can be gauged by the impact of demand and supply disequilibrium on stock prices. When demand for a stock exceeds supply at a given point in time because there are more buyers than sellers, the stock will rise; conversely, when supply exceeds demand because there are more sellers than buyers, the stock will fall.

The indirect effect is based on supply and demand for the underlying company's products and services. If the company's products are flying off the shelves because of robust demand, it may be on a probable strong earnings trajectory that would likely translate into a higher price for its stock. But if demand is sluggish and there is excess inventory (or supply) of its products, the company's earnings may disappoint and the stock may slump.

Does My Portfolio Performance Hinge on Both Microeconomic and Macroeconomic Factors?

Yes, the performance of your portfolio hinges on both microeconomic and macroeconomic factors. Microeconomic factors such as supply and demand, taxes and regulations, and macroeconomic factors such as gross domestic product (GDP) growth, inflation, and interest rates, have a significant influence on different sectors of the economy and hence on your investment portfolio.

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Microeconomics vs. Macroeconomics: What's the Difference?

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Economics is divided into two categories: microeconomics and macroeconomics. Microeconomics is the study of individuals and business decisions, while macroeconomics looks at the decisions of countries and governments. Though these two branches of economics appear different, they are actually interdependent and complement one another. Many overlapping issues exist between the two fields.

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Lumen briefly mentions the Micro vs Macro, they explain that taking in both perspectives can really help understand why microeconomics and macroeconomics are so important in the economy. As well as how it can relate similarly to other scenarios. In one paragraph they discuss how the well being of the micro economy is dependent on the well being of the macro economy. They state that when it comes to studying individual households or firms, there are factors that compare to that of a macro economy and how the macro economy is working in total.

We believed Lumen was a good choice as a website to go through is because they go into detail about the goals of microeconomics and macroeconomics, It is intended to help the reader understand that there is a certain type of macro economy and micro economy that is trying to be achieved. They explain for example, that the goals of the macro economy aims to achieve Growth in the standard of living, low unemployment and low inflation. These are only some of the goals that they briefly describe.

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Learning Objectives

Distinguish between macroeconomics and microeconomics

Micro vs. Macro

It should be clear by now that economics covers a lot of ground. That ground can be divided into two parts: microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses; macroeconomics looks at the economy as a whole. It focuses on broad issues such as growth, unemployment, inflation, and trade balance. Microeconomics and macroeconomics are not separate subjects but are, rather, complementary perspectives on the overall subject of the economy.

To understand why both microeconomic and macroeconomic perspectives are useful, consider the problem of studying a biological ecosystem like a lake. One person who sets out to study the lake might focus on specific topics: certain kinds of algae or plant life; the characteristics of particular fish or snails; or the trees surrounding the lake. Another person might take an overall view and instead consider the entire ecosystem of the lake from top to bottom: what eats what, how the system remains in balance, and what environmental stresses affect this balance. Both approaches are useful, and both researchers study the same lake, but the viewpoints are different. In a similar way, both microeconomics and macroeconomics study the same economy, but each has a different starting point, perspective, and focus.

Whether you are looking at lakes or economics, the micro and the macro insights should illuminate each other. In studying a lake, the "micro" insights about particular plants and animals help us to understand the overall food chain, while the "macro" insights about the overall food chain help to explain the environment in which individual plants and animals live.

In economics, the micro decisions of individual businesses are influenced by the health of the macroeconomy-for example, firms will be more likely to hire workers if the overall economy is growing. In turn, the performance of the macroeconomy ultimately depends on the microeconomic decisions made by individual households and businesses.

Microeconomics

What determines how households and individuals spend their budgets? What combination of goods and services will best fit their needs and wants, given the budget they have to spend? How do people decide whether to work, and if so, whether to work full time or part time? How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means?

What determines the products, and how many of each, a firm will produce and sell? What determines what prices a firm will charge? What determines how a firm will produce its products? What determines how many workers it will hire? How will a firm finance its business? When will a firm decide to expand, downsize, or even close? In the microeconomic part of this text, we will learn about the theory of consumer behavior and the theory of the firm.

Macroeconomics

What determines the level of economic activity in a society or nation?-that is, how many goods and services does it actually produce? What determines how many jobs are available in an economy? What determines a nation's standard of living? What causes the economy to speed up or slow down? What causes firms to hire more workers or lay them off? Finally, what causes the economy to grow over the long term?

An economy's macroeconomic health can be assessed by a number of standards or goals. The most important macroeconomic goals are the following:

Growth in the standard of living

Low unemployment

Low inflation

Macroeconomic policy pursues these goals through monetary policy and fiscal policy:

Monetary policy, which involves policies that affect bank lending, interest rates, and financial capital markets, is conducted by a nation's central bank. For the United States, this is the Federal Reserve.

Fiscal policy, which involves government spending and taxes, is determined by a nation's legislative body. For the United States, this is the Congress and the executive branch, which establishes the federal budget.

To keep the differences between these policies straight, remember that the term monetary relates to money, and the term fiscal relates to government revenue or taxes.

These are the main tools the government has to work with. Americans tend to expect that government can fix whatever economic problems we encounter, but to what extent is that expectation realistic? These are just some of the issues that will be explored later in this course.

WAtch It

The differences between microeconomics and macroeconomics as well as their respective and focal points are explained again in the following video:

Glossary

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Distinguish between macroeconomics and microeconomics It should be clear by now that economics covers a lot of ground. That ground can be divided into two parts: microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses; macroeconomics looks at the economy as a whole.

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The government of Canada's take on Microeconomics briefly delivers on talking about how market and firm factors affect the micro economy. It describes how specifically the SPS (Strategic Policy Sector) is the part of the government that notes on the micro economy, including the productivity, firms, and business innovation.

We chose this website because it had a specific information regarding the Canadian's way of dealing with the micro economy and the department that takes notes from these specific details apart of our economy. The most interesting thing we found was about the SPS (Strategic Policy Sector) and how they organize workshops, conferences etc. in order to record information on the micro economy at the moment.

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Micro-economics looks at how individual markets work, and at how individual producers and consumers make choices and what effects those choices have on the economy. Sound micro-economic research and strategic information is necessary to provide a foundation for Innovation, Science and Economic Development Canada's policy development work. Much of this research is produced within the Strategic Policy Sector (SPS).

Recent micro-economic research performed within SPS focuses on productivity, the performance of firms and the determinants of business innovation. Areas of particular interest include research on how:

SPS also organizes conferences, workshops and speakers series, and ensures that the results of its research are available to policy developers, other researchers and Canadian citizens. The following links provide access to some of the research produced or sponsored by SPS.

The Economic Research and Policy Analysis Branch is responsible for coordinating economic research within Innovation, Science and Economic Development Canada and related outreach activities.

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Micro-economics looks at how individual markets work, and at how individual producers and consumers make choices and what effects those choices have on the economy. Sound micro-economic research and strategic information is necessary to provide a foundation for Innovation, Science and Economic Development Canada's policy development work.

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This is Stats Canada's archived information on the recent macroeconomic development. This was a very useful website that allows for readers to keep up with how the macroeconomic economy is developing and affecting the microeconomics in Canada. It shows the organization and major key developments that is categorized within a bar graph, with other factors such as GDP and annual growth rate.

We chose this website because although there wasn't a lot of very specific mentions with an up to date bar graph allowing us to see how much the macro-economy is affecting Canada in general. The one thing that really caught our attention was the brief summary of the macro economy's development throughout 2014 for example explaining that the Real GDP accelerated within a broad base and the exchange rate movements.

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Note of appreciation

Canada owes the success of its statistical system to a long-standing partnership between Statistics Canada, the citizens of Canada, its businesses, governments and other institutions. Accurate and timely statistical information could not be produced without their continued co-operation and goodwill.

Standards of service to the public

Statistics Canada is committed to serving its clients in a prompt, reliable and courteous manner. To this end, the Agency has developed standards of service which its employees observe in serving its clients.

Copyright

Published by authority of the Minister responsible for Statistics Canada.

© Her Majesty the Queen in Right of Canada as represented by the Minister of Industry, 2014

All rights reserved. Use of this publication is governed by the Statistics Canada Open Licence Agreement.

Catalogue no. 11-631-X

Frequency: occasional

Ottawa

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An overview of recent macroeconomic developments in Canada

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Canada owes the success of its statistical system to a long-standing partnership between Statistics Canada, the citizens of Canada, its businesses, governments and other institutions. Accurate and timely statistical information could not be produced without their continued co-operation and goodwill. Statistics Canada is committed to serving its clients in a prompt, reliable and courteous manner.

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In this video, Alanis's business Academy not only goes in to microeconomics and macroeconomics but has a small diagram to understand concepts. Alanis talks about the people and the behavior. With macroeconomics he discusses Aggregation and how the behavioral factor of people in aggregation works, such as inflation, National unemployment and GDP. The video then moves on to him explaining microeconomics and the smaller part of that develops through people's behavior. For example, as student's allocation of study time and a family's choice to purchase a new vehicle.

The reason we chose this video is because of how specific the examples were that he had given about microeconomics and macroeconomics. He talks about people's behavior within macro and microeconomics and how many different components or situations of these behaviors can affect the economy as a whole. The one thing we found very interesting was that something as small as the choosing study times can affect a micro economy and how it functions.

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Introduction to Economics: Macroeconomics and Microeconomics | Episode 32

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Starting off with a very funky intro music, this video starts by first explain the basics of micro and macroeconomics with pictures as he explains. The video, albeit short at 2 minutes, has interesting information all put in to different examples and scenarios. For example, he brings up the scenario of the price of gasoline and how the price of gas rising affects a lot of people, considering a lot of people use gas, but goes on to mention that gas is just one service or good, therefore making it a microeconomics factor!

We chose this video because despite it being a short video, it allows someone who has never read about economics to be introduced in to micro and macroeconomics while having small questions asked to them. The reason we really enjoyed this video (other then the really nice intro music), was because the presenter explains micro and macroeconomics with pictures as well as scenarios. Although, we had learned about the basics of micro and macroeconomics already, we found that we were able to be engaged in learning about choosing whether a scenario is a microeconomic factor or a macroeconomic factor.

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Like any good introduction to a topic, the first point in this video is the history of how macroeconomics came to be. The video also used Greece as an example of how macroeconomics was used to determine that the country was heading into a recession in 2013. It describes the 3 measurements of an economy: GDP, unemployment, and inflation. While explaining unemployment, the speaker points out that unemployment can never be 0%, which makes sense, but I never realized that it was impossible. The conclusion of the video uses the analogy of driving a car on the highway as the performance of an economy.

We chose this video because it breaks down and explains the 3 factors of how an economy is measured. It explains how economists learned to study the production and cash flow of an entire nation to calculate how well a country is doing economically. One thing we found useful that we didn’t know was when microeconomics started to be studied, which occurred during the Great Depression.

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Macroeconomics: Crash Course Economics #5

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This video explains the "Big Mac Index" a fictional relationship of the value of a Big Mac per country across the planet. Mainly, that a Big Mac from McDonald’s has a different cost in different countries because of certain economic factors. McDonald's sets the cost of Big Macs according to the cost of labour, rent, ingredients of a country’s economy, as well as the local income level of the consumers.
The video then talks about purchasing power to show that certain currencies can buy Big Mac for more or for cheaper. Then the video talks about how Venezuela has the lowest cost Big Mac because of currency devaluation and high inflation, an example of macroeconomics affecting microeconomics.

Also explains how many minutes an average person must work in certain cities in order to afford a Big Mac.

Lastly, the video explains how even though the cost of ingredients doesn’t really change, the cost of making a Big Mac is dependent on the labour cost of the working and the cost of the retail space.

While this video isn’t explicitly about micro vs. macro, since the term “macro” can mean large or big, we feel it is worth sharing. One thing we learned that we didn't previously know was that Venezuela had the lowest cost Big Mac in the world.

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1. What did you learn about your topic that surprised you the most?

The one thing that really was surprising for all of us was learning about the economy in 2014. This was a surprise because of how the Canadian dollar depreciated in the macro economy during Q1 but came back up during Q2. Macroeconomics is a very vague term, it references the economy in a total. Therefore having a website specifically about the developments of Canadian economics was surprising and a very nice idea to have.

2. Provide a real-life example of how this topic is relevant or interesting for you.

Since this is a really broad topic, we would say that a real-life example of micro versus macroeconomics would be how we watch the news now. When CP24 reports on unemployment, or GDP, or interest rates, or the fluctuation of the price of gas, we now understand the large-scale and small-scale factors that affect these things.

3. If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

The most important thing to pass on would be that when the Bank of Canada raises its interest rate, check to see if the commercial banks adjust their interests rates as well. If they don't, then getting a loan wont cost as much. If they do, put money in a savings account, as the bank will pay higher interest to use the money.