Living Economics: Macroeconomics v. Microeconomics

*The game referenced in this article is ‘The Tribez‘ offered by Game Insight UAB.

The study of economics has historically been divided into two primary areas of study — Macroeconomics and Microeconomics.

Fortunately many of the fundamental concepts overlap. For example, both courses cover incentives, the circular flow diagram, supply and demand charts. . . The main difference between Macro and Micro lies in the perspective and focus:

Economics

Economics is the study of how resources are created, gathered, traded, and divided. *You can find more about the introduction to economics in general via our previous article.

Resources are scarce (there are rarely enough resources available for everything we wish to do with them). Economics is fundamentally then the study of how humans use scarce resources and why those decisions are made.

Economists seek to improve the management of resources by individuals, companies, and governments for more effective and efficient use.

A key factor is value-based decision making. Which resources do people value? How much? Which do they value more? What are they willing to sacrifice? Resources cannot be effectively managed until their true value is known.

Video courtesy of “Crash Course: Economics”

Macroeconomics

Macroeconomics (宏观经济学) centers on the bigger picture (macro), assessing how countries and governments create, gather, trade, and divide resources domestically and internationally.

A country’s unique system of managing resources is called their economy. Each country has its own ideals about how the economy should work. The global economy is a much larger, intricate system wherein countries and forces interact – either cooperating or competing in the management of resources internationally.

Key issues include

  • Protecting resources from depreciation or erosion due to natural or man-made factors;
  • Creating and Developing new resources;
  • Encouraging and incentivizing the trade of resources;
  • Developing more efficient and readily-available systems of trade;
  • Establishing policies for the fair division of resources throughout the national economy.

In addition to the standard economic discussions (trade-offs, profitability, equilibrium), macroeconomics will also dive into

  • Birth Rates & Population Control
  • Labor and Human Capital
  • Innovation and Technology
  • Consumption (Essentials v. Non-Essentials)
  • Income Levels and Wage Equality Strategies
  • Tax Policies
  • Economic Regulatory Policies
  • Fiscal Policies
  • Trade and Price Controls
  • National Incentives and Trade-Offs (e.g. Guns v. Butter)
  • International Trade
  • Public Resources (e.g. Parks)
How can the government manage resources to ensure maximum happiness for everyone?

Macroeconomic decisions lie everywhere within society:

  • How should the workers be taxed?
    • If taxes are too high, the workers will be unable to afford basic necessities — they may die or move away.
    • Taxes are the governments’ primary revenue stream, if taxes are too low who will provide the roads. . . hospitals. . . national defense?
  • Which resources should a government provide? Which should be left to public businesses?
    • Hospitals?
    • Military?
    • Prisons?
    • Schools?
    • Museums?
    • Zoos?
    • Theatres?
    • Sweet Shops?
  • Which resources should be legal? What trade should be discouraged?
    • In the game above, there are no weapons stores. . . no brothels. . . no shops selling drugs . . . no slave markets. Why?
    • If a trade is profitable and efficient for the development of resources . . . is it something the government should invest in? Where do ethics come into play?
    • If there are resources we want to discourage, how should that be accomplished? Prohibition? Taxes?
  • How can the government ensure fair and balanced access to public resources?
Is this an example of wise economic decision-making?

Microeconomics

Microeconomics (个体经济学) hones in on the details (micro) and adopts a more personal perspective, analyzing how individuals and companies interact and facilitate the creation, gathering, trade, and division of primarily privately-owned resources.

Key issues can include:

  • How companies interact to create, gather, trade, and divide resources within production and investments
  • How consumers create, gather, trade, and divide resources with each other.
  • How the companies and consumers trade resources in the market of goods and services and the market for factors of production.
  • How the government influences the circular flow of resources between consumers and companies (e.g. price controls, taxes)
  • How consumers and companies respond to macroeconomic factors and changes to the national or global economy.

Microeconomics looks at factors including:

  • Consumer Tastes and Marketing Strategies
  • Prices
    • Pricing decisions
    • Elasticity (The relationship between Prices and Quantities Sold)
    • Predicting Changes in Revenue with Pricing Changes
    • Price Controls
  • Trade off between Revenue and Costs
  • Supply & Demand
    • How to Predict Supply ad Demand if the Factors are Known
    • How Supply and Demand Shifts when the Factors Change
  • Equilibrium
  • Taxes
  • Cost Management of Inputs
  • Manufacturing of Resources
  • Competitive Factors (Oligopolies, Monopolies)
  • Consumption
    • Why are some products purchased at high prices and others aren’t?
    • Why are we willing to buy more cars in Country A and bikes in Country B?
    • Why are some products that have high demand not sold in the stores?
    • How do our needs and values change day – to – day, year – by – year?

Why Does Economics Matter?

Whether a country is Socialist or Capitalist . . .
Whether a country has a large middle class or significant class divide. . .
Whether the military is large or small. . .
Whether your company includes insurance in your benefits. . .
Whether fire safety mechanisms are required in factories . . .
Whether education is a priority . . .
Whether information is distributed freely or limited . . .
Whether infrastructure is safe or left to decay . . .

These are all economic decisions — choices made about resources and how they will be used.

Economics determines what resources are available for the poor. Whether the country is open to international trade or not. Whether the population increases or decreases. Whether the environment is protected or exploited. Whether there is a minimum wage. Whether farmers operate in a free market or under price controls. Whether taxes are high or low. . . .

If these choices are not made properly, it truly is the difference between life or death.

Stronger economies, those built on solid economic theories and decisions, tend to result in:

  • Higher Productivity = more job opportunities and higher income levels
  • Higher Technology = better access to medicine, education, safe infrastructure
  • Longer Life Expectancy Rates due to better medicine and health
    • The US has a 99.3% rate of Children living to the age of 5
    • Liberia has a 76.5% survival rate for Children under the age of 5
  • Larger Variety of Product Offerings derived from economies of scale and scope = lower costs and better satisfaction of needs
  • More Options for Self-Determination, the ability to choose what one wants with life. The chance to pursue dreams, aspirations, career goals. The opportunity to be an artist or dancer is far more likely where the people are not living at a subsistence level.

Unfortunately not all countries (or economies) are created equal in terms of resources on hand.

Countries that have more natural resources (e.g. U.S., Russia, and China) tend to have larger economies. Countries with greater diversity of resources tend to be more stable and find greater opportunities for international trade. Countries with highly valuable or highly limited resources (e.g. natural gas, oil, gold) tend to be more profitable annually. Countries that have positive historic relations may find it easier to trade their resources globally.

Craig Anthony (2019) ’10 Countries with the Most Natural Resources’

Conversely, it is not always true that a country rich in natural resources will automatically be financial or economically successful. Examples of this are scattered throughout history. . . consider France who wasted its wealth for years on wars, colonialist efforts, and a wealthy nobility until it found itself in the middle of the French Revolution. India whose innumerable resources have done little to mitigate the continued social inequality. Venezuela whose economic collapse into utter poverty and civil chaos has been the talk of newspapers for the past several years by now.

There are many reasons why economies with substantial resources may find themselves suffering:

  • Corruption
  • Disease
  • Poverty
  • Wars and Civil Unrest
  • Unstable or Weak Governments
  • Poor International Relations
  • Terrorism
  • Inability to Unify regionally or nationally
  • etc.

Economists hope to mitigate those issues and help countries reach their full potential.

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