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Macro/Micro difference Essay Example

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Macro/Micro difference

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If the income increases, households have more purchasing power hence demand more goods and services thereby shifting the demand curve to the right and if income decreases, households reduce the demand for goods thus shifting the curve downwards. Same case applies to increase or decrease in the wealth of firms and households. However, it depends on the type of good or service. For an inferior good, an increase in income or wealth leads to decrease in quantity demanded of the good but for normal goods, an increase in income or wealth leads to more demand for the good (Beggs, 2011).Mankiw (2011) notes that a change in demand as a result of change in taste and preference or price of related products depends on the type of goods affected. For example, if a consumer changes his/her preference from Pepsi to coke which are substitute goods, the demand for coke increases while demand for Pepsi decreases. For substitute goods, an increase in price of one good leads to an increase in quantity demanded of the other good. For example, if price of coke increases relative to the price of Pepsi, consumers shift demand from coke to Pepsi which serves the same purpose. For complimentary goods, an increase in price of one good leads to decrease in quantity demanded of the other good.Macroeconomics deals with aggregate demand and aggregate supply in the economy. Aggregate demand comprises of; consumption, investment, government expenditure, exports and imports or the real national output (GDP). As Kyer and Maggs (1994) puts it, macroeconomics is not concerned with price elasticity, marginal costs and revenues as well as individual choices but rather government policies and the behaviour of the economy as a whole. The aggregate demand in the economy is not affected by price but rather other factors such as; expectations of households, income, wealth, interest rates, exchange rates among others. The supply side is affected by profit expectations of producers, production costs, weather, taxes, and number of firms among others (Cliffsnotes, 2011). In macroeconomics, there is no substitute, complementary, inferior or normal goods categories as all goods are added into one basket. The price level in the economy is determined by aggregate demand and aggregate supply.According to Tucker (2008), any changes in the components of the GDP leads to a shift in aggregate demand curve. For example

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References

Anderton, A. (2000) Economics. 3 edn. London: Pearson Education

Arora, K. 2008. Introductory Macroeconomics for Class XII. New Delhi: Tata McGraw-Hill

Baumol, W., Blinder, A. 2011. Economics: Principles and Policy. 12 edn. USA: Cengage.

Beggs, J. 2011. “Microeconomics Versus Macroeconomics.” About.com Guide. Accessed November 11, 2011, from http://economics.about.com/od/economics-basics/a/Microeconomics-Versus-Macroeconomics.htm

Cliffsnotes.com. 2011. “Aggregate Demand (AD) Curve.” Accessed November 10, 2011, from

http://www.cliffsnotes.com/study-guide/Aggregate-Demand-AD-Curve.topicArticleld-9789, articled-9737.html.

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Kyer, B., Maggs, G. 1994. “A Macroeconomic Approach to Teaching Supply Side Economics”. Journal of Economic Education, Vol, 25.

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Tucker, Irvin. 2008. Macroeconomics for Today. USA: Cengage Learning.

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