Economics is broadly divided into two principal branches: macroeconomics and microeconomics. While both fields examine the allocation of scarce resources, they differ in scope, analytical focus, and policy implications. Together, they provide a comprehensive framework for understanding economic behavior at both the individual and aggregate levels.

Microeconomics studies the behavior of individual economic agents, including households, firms, and industries. It focuses on how these agents make decisions regarding the allocation of limited resources and how their interactions determine prices and quantities in specific markets. Central to microeconomic analysis are the concepts of supply and demand, market equilibrium, elasticity, consumer choice, production theory, and market structures such as perfect competition, monopoly, oligopoly, and monopolistic competition.

One of the core assumptions in microeconomics is rational choice: individuals and firms are presumed to maximize utility and profit, respectively, subject to constraints such as income, technology, and market prices. Through these interactions, markets coordinate decentralized decisions, often leading to efficient outcomes under conditions of perfect competition. However, microeconomics also examines market failures, including externalities, public goods, information asymmetries, and monopoly power, which may justify government intervention.

Microeconomic analysis is essential for understanding price formation, resource allocation, income distribution at the individual level, and the effects of taxation, subsidies, and regulation on specific markets. It provides the theoretical foundation for fields such as industrial organization, labor economics, and public economics.

Macroeconomics, in contrast, studies the economy as a whole. It examines aggregate variables such as gross domestic product (GDP), inflation, unemployment, national income, economic growth, and the balance of payments. Rather than focusing on individual markets, macroeconomics analyzes broad economic trends and systemic relationships.

A central concern of macroeconomics is economic stability and growth. It seeks to explain fluctuations in economic activity—commonly referred to as business cycles—and to evaluate the role of government policies in stabilizing the economy. Two primary policy tools are fiscal policy, managed by governments through taxation and public expenditure, and monetary policy, implemented by central banks through control of money supply and interest rates.

Macroeconomic thought has evolved significantly over time. The work of John Maynard Keynes emphasized the role of aggregate demand in determining output and employment, particularly during periods of economic downturn. In contrast, economists such as Milton Friedman highlighted the importance of monetary policy and inflation control. Contemporary macroeconomic models often integrate elements from multiple schools of thought, using mathematical frameworks to analyze long-run growth, short-run fluctuations, and expectations.

Although macroeconomics and microeconomics differ in scope, they are deeply interconnected. Macroeconomic outcomes emerge from the aggregated behavior of individuals and firms studied in microeconomics. Conversely, macroeconomic conditions—such as inflation rates, interest rates, and economic growth—directly influence individual decision-making at the micro level.

Modern economic research increasingly seeks to establish “microfoundations” for macroeconomic models, ensuring that aggregate relationships are consistent with individual behavior. This integration underscores that macroeconomics and microeconomics are not separate disciplines, but complementary approaches to analyzing economic phenomena.