Micro and macro economic on us trade - Essay Example

? MICRO AND MACRO ECONOMIC ON US TRADE This paper defines in detail what Macroeconomics and Microeconomics are about and what their impacts on the economy of a country are. We have taken into account the impact the two kinds of economies create on U.S. trade and why is it important for the survival of the nation. MICRO ECONOMICS Microeconomics pertains to the economic decision and choices that are made by individual consumers, firms and industries and the impact it has on the allocation of resources, demand and supply in economies of the market. As demand and supply determines the prices of goods and services available in the market, microeconomics also defines how prices feature in various economic decisions and vice versa. Micro economists are principally apprehensive about studying numerous reasons of market failure and signifying means to correct or stop them, mostly with the help of public policy or by involving the government. (Bernanke, 2003) Monopoly is one of these failures that the market faces. Monopoly mainly crops up when a business produces a good at too cheap a price that its competitors are forced to leave the market. In the US, true Monopoly is rare these days, still IBM, Microsoft and Wal-Mart are bordering to it. Whereas, Oligopoly strikes when, in a specific industry, some of the controlling businesses collate and set the prices as per their choice for the entire industry to either fallow or leave the market. Oligopolistic industries in the US include accounting and audit services, aircraft, military equipment, music recording industries and film. (Dwivedi, 2002) Businesses that are well-built may consider monopolizing the market by either controlling all possible ways of production or purchasing industrial resources, therefore forcing the competitors to shut down and leave. Not all businesses are granted the rights to monopolize an industry as some governments do intervene and stop such acts. Monopolies and other failures of the market are deemed undesirable and inefficient means of allocation of resources, by the micro economists, and that is the reason why they are not acceptable in any industry. It is suggested by these economist that Perfect Competition shall be utilized to balance the demand and supply ratios. It is the only mean whereby no single firm or individual rules the market price of the goods or services. The price of the product is determined by its total cost and the profits depend on the demand the product has. Perfect Competition maximizes both consumer utility and the profits of a firm while utilizing the resources in an efficient manner. Sadly, these suggestions are seldom infallible as economics consists of numerous interactions between various market forces that are complex in nature. It is almost impossible to foresee the outcome of any economic policy. The job of micro economists is to suggest resolution of market failures that has the finest effect no matter what the inadvertent costs are. (Gwartney, 2009) Microeconomics also determine the most suitable policies keeping in mind the reaction that will be derived from the incentives and disincentives given to the public in such policies. For instance, in the US industries are allowed in urban areas the smoke and particles of chemicals will damage the water and air in the locality. This will not only make people fall sick, resulting in increase of healthcare facilities and medication and but also hurt the ecological lifecycle of that area. Furthermore, due to the lost beauty of nature, tourism will also be affected. To prevent such hazards, the government controls the areas where such industries are allowed to function, on the advice of the micro economists. If the company does not find this condition conducive to their profits they may choose to relocate elsewhere this would increase unemployment in that area therefore the government may opt to give them some incentive to stay back. This may include a tax break for sometime till they make enough profits to accommodate this policy without much damage. Economic concepts and theories end up discussing one major thing and that is called utility. Why people in the US prefer eating apple and not 3 cheese stuffed crust pizza offered by Pizza Hut, it all has one answer and that is that the utility of pizza to that person is less than that of an apple. Microeconomics has its application in all fields of life including health, law, medicine and psychology. (L.Sexton, 2011) There are few limitations of micro economics; for instance, it assumes full employment in the economy which is quite idealistic. Therefore, it can be concluded that micro economics is the study of trees of the economy deviating from the forest. MACRO ECONOMICS The word “Macro” is described in Greek language as “Makro” means big, elucidating the economic progressions that apprehend the amassed (aggregate). Aggregate refers to as the whole host of the subject that has some features in common. As compared to Microeconomics deals with the economic concerns that affects the individuals only. It scrutinizes economy-wide occurrence of events and trends such as change in employment, growth rate, GDP (Gross Domestic Product), price increases (Inflation), national income and level of price. For instance, if company Y decides to purchase a new office chair that is not a macro-economic case. In contrast, US household’s reaction to the increased capital taxation rate is a macro-economic concern. (Blecker, 1996) The understanding of working of the national economy helps us interpret the causes and effects of various economic scenarios of the past, makes the present day situation a lot more crystal clear, at the same time giving an idea as to how things would be in the future and how can they be made better if so desired. It is due to this factor that the comprehension of macro economics has lucid commercial inference. Macroeconomics also studies the national output and how it grew by the passage of time, together with problem that arise due to recession, unemployment inflation, the balance of international payment and the government policies that have been formulated to deal with such problems. (Hall, 2012) Macroeconomics helps understand income and employment determination. Macroeconomics defines, together with other factors, as to how the general price level is arrived at and what major factors determine and control it. Policies furnished by macro economics theories, help achieve the long run economic growth in a stable manner. The international trade and its various aspect are analyzed through macroeconomic theories through close monitoring of the problems that are encountered in balance of payment and the effect that variation in exchange rate has on it can be analyzed as well. Furthermore economists have suggested that the ratio of investment in the national income determines the wages and profits earned by the people. In the US, unemployment is another issue that macroeconomist address by explaining its causes in a defined manner and suggesting various means to deal with the cyclical unemployment and inflation that effects it. The most important policies of any state are those suggested by macroeconomist that is the fiscal and monetary policies. These policies affect the performance of the entire economy of the country and decide how it will perform and what will be its targets for the years to come. Macro economics emphasizes on the fact that the economy of a nation is part of the general global economic system. If a country has a weak economy it will have ill effects on the global economy. Too many weak economies can lead to a global economic crisis. Therefore, it is pertinent for every nation to keep a look out on the economies of other nations and always lend a helping hand to those in need or else those nations can drag the economy of the world as a whole into a big crisis. (Tucker, 2011) CONCLUSION Concluding the vast field of macro economics, one can assume that macro economics is the analyses of the whole forest of the economy distinct from the trees. It can safely be said that both Macroeconomics and Microeconomics are an important feature of any economy and this is the reason why any country cannot survive without even practicing one and not the other. From trade to the economy of the entire country everything is dependent on the two. References Bernanke, B. (2003). Principles of Microeconomics. NewYork: McGraw-Hill Companies Inc. Blecker, R. A. (1996). U.S. Trade Policy and Global Growth: New Directions in the International Economy. NewYork: M.E. Sharpe. Dwivedi, D. (2002). Microeconomics: Theory And Applications. Dehli: Pearson Education India. Gwartney, J. D. (2009). Microeconomics: Public and Private Choice. Mason : Cengage Learning. Hall, R. E. (2012). Macroeconomics (Hall). Mason: Cengage Learning. L.Sexton, R. (2011). Exploring Microeconomics. Mason: Cengage Learning. Tucker, I. B. (2011). Macroeconomics For Today. Mason: Cengage Learning. Read More