Difference Between Macroeconomics and Managerial Economics

Table of Contents

Economics is the branch of social science that finds it’s usage in day to day life. It deals with concepts related to profit, production, consumption and distribution of goods and resources. The use of economics enables organisations and governments to allocate funds to maximize output.

Macroeconomics vs Managerial Economics

The main difference between Managerial and Macroeconomics is that Managerial Economics uses the concepts of microeconomics to assist rational decision making in a managerial setup, while Macroeconomics is a dedicated branch to determine economic correlations that can assist in better policymaking for bigger agencies, nationals and international bodies.

Macroeconomics is the analysis and study of the several levels within an economic system with a holistic approach. It involves dealing with countries, industries, and GDPs to understand and devise effective policies at a larger level.

Microeconomics, on the other hand, uses the bottom-to-top approach, as it focuses on the demand and supply chain, profit-making, and the decisions made by companies that ultimately affect things like pricing in an economy.

When Microeconomy is put to use in a managerial set up to determine the ideal options for effective decision making, it is called Managerial Economics.

Comparison Table Between Macroeconomics and Managerial Economics (in Tabular Form)

Parameter of Comparison	Macroeconomics	Managerial Economics
Definition	The branch of economics dedicated to studying the functioning of economic systems and evaluating policy outcomes.	The branch of economics dedicated to using theories of economics for better management decision making.
Principle	Macroeconomic theories are devised by perspective analysis.	It borrows theories from Microeconomics.
Nature	Nature is largely theoretical	It is based on the application of principles.
Size and Spread	The subject of study in case of macroeconomics is normally a very big economic system like countries and even multiple nations,	Since it derives its principles from microeconomics, the subject of study is limited to a smaller setup, usually an organisation.
Limitations	Since the studies are done in a vacuum, practical implications such as Taxation are ignored.	Study and application are limited to a specific project/ organisation.

What is Macroeconomics?

Macroeconomics is a broad branch within economics that is dedicated to studying large scale economic phenomenon and market systems. The branch focusses on broad concepts such as GDP (Gross Domestic Product), employment rate and inflation.

In Macroeconomics, the primary concern is the functioning of economic bodies as a whole, and the role they play in the overall economic development. The application fo macroeconomic theories can help people calculate and analyse the nature of interdependence across economic sectors.

These theories can be further used by governments, industries and investors to predict the outcomes and loopholes within the existing structure. Investors can benefit immensely by understanding the system of trade and production from a broader perspective.

Governments and diplomats use macroeconomic theories to devise financial policies and address issues such as unemployment and poverty. They further help in better budgeting and allocating funds for long-term policies.

Studies in Macroeconomics are divided into two major categories. The first one involves elaboration on the consequences and effects of short-term economic policies. The second one is the study of long-term policies on economic systems and it’s the effect on economic growth.

The key variables in macroeconomics are;

Input and Output – The product/produce in each economy is called its output. The output is likely to generate some form of income hence the terms are often used interchangeably. The overall income of an economic system is the most important marker for economists.

Unemployment – It is generated by determining the unemployment rate of an economic system. An individual is considered unemployed if he/she is a job seeker.

Inflation and Deflation – The increase and decrease of overall prices in an economy are called inflation and deflation respectively. Monetary policies are designed to avoid such drastic fluctuations in pricing.

What is Managerial Economics?

Managerial Economics is the use of microeconomics theories to make better management decisions. The combination of economic theories and business practices enables effective future planning for ventures.

Mangers basically use the firm’s microeconomic theories to make important analytical decisions. Such decisions can benefit profit-making bodies in optimizing their output by helping managers reallocate their resources.

Hence, Managerial Economics is a branch of microeconomics that specifically helps in making management decisions. Managerial economics can be distinguished from other management practices through its rigorous use of quantitative methods to draw conclusions. It uses calculus, computational mathematics and operations research to devise solutions for an economic problem.

Managerial Economics can be applied in a vast area of issues, however, it is mostly put to use in the following case.

Risk Analysis – Quantitative analysis of risk can be done to allocate decision rule for the management of such risks.

Production Analysis – Assessment of total production, economic sale and costs.

Pricing Analysis – The companies pricing decisions can be determined using techniques of managerial economics. Calculation of price determinants such as joint product pricing, optimum pricing and joint product estimations can be done. Capital Budgeting- Estimating the ideal investment amount for companies.

Main Differences Between Macroeconomics and Managerial Economics

Macroeconomics is a branch of economics that analysis ad studies the functioning of variables in an economic system and determines important outcomes of policies and market structures, while Managerial Economics is a branch of microeconomics that uses its principles to assist in better decision making.

Macroeconomics devises its own theoretical network, while Managerial Economics uses the theories and principles of microeconomics.

Macroeconomics focus on understanding the economy as a whole, hence their subject size is as big as a nation or multiple nations, while the subject of focus for managerial economics is specific organizations and its customers.

While Macroeconomics is largely theoretical in nature, Managerial Economics has a more practical and application-based framework.

Macroeconomic theories are often constructed in vacuum minus some real-world details like taxation and cost regulation, while managerial economics is based on practical applications hence the details become an imperative part.

Conclusion

Economics is the study of production, distribution and profit. Economic studies can be divided into two major branches namely Macroeconomics and Microeconomics. While Macroeconomics is the study of the functioning of an economic system or systems, Microeconomics deals with concepts and variables such as production, Profit, Fiscal Loss etc.

A specific branch of Microeconomics called Managerial Economics uses the theories of microeconomics to assist in better and rational decision making. The main difference between Macroeconomics and Managerial Economics is that the former finds it’s used in the analysis of the entire economic system while the latter uses the theories of microeconomics as a tool to help in rational decision making for managers of a specific organisation.

References

https://ideas.repec.org/b/oxp/obooks/9780198776147.html

https://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/7932/1/HJeco0230100010.pdf

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