A source of much confusion is the distinction economists make between Macroeconomics and Microeconomics.  As different as cell biology is to zoology, they at least have in common their study of living organisms.  But if one talks with both a Microeconomist and Macroeconomist, you’ll struggle to find any such unifying concept.  At face value, Microeconomics is concerned with decision making under conditions of scarcity and how both unanticipated shocks and public policy might affect that decision making.  Macroeconomics on the other hand addresses the growth of material abundance and the stability of markets. 

But perhaps we can use the Production Possibilities Frontier (PPF) to gain some insight into the meaning of each separately and also how they relate to one another.  Remember the PPF illustrates the concept of scarcity by demonstrating a stylized world where the tradeoff is between two, or at most three, competing options.  While a world with thousands or millions of options is more realistic, remember the purpose of a model is to abstract enough from reality to make the underlying principle more obvious.  And so, in our PPF model we have on one axis “shared goods” and on the horizontal “private goods”.  Should we produce more parks, museums, and public transit?  Or perhaps more private back yards, televisions, and private cars?  Points B and C on the following PPF demonstrate two such options. 

Largely Microeconomics is concerned with how individuals or groups of individuals, or even whole societies choose between the such alternatives on a PPF.  Should I accept a longer commute so I can afford a larger house?  Should we cut social welfare programs in order to shore up national security?  Will electric vehicles replace gasoline vehicles?  These are the types of questions answered every day.  Microeconomics is simply the formalized study of how they are answered.

But what about points A and D?  Remember every point along the PPF is possible.  And so, at a point like A, it is possible by moving to the northeast to have more of both shared and private goods.  Microeconomics largely assumes we’d never deliberately be at point A.  And so, the relevant choice is between points like B and C.  But the reality is we are often at points like A.  Market economies regularly cycle between expansion and contraction.  And during economic contractions, factories and shops close, workers become unemployed, and production decreases.  During economic contractions we move to points just like A.  So, while Microeconomics ignores point A, Macroeconomics is very interested in both why A happens and how public policy might be used to move from point A back toward a point like B or C.

And what about point D?  Point D is outside the PPF and so currently unattainable.  But over time our ability to produce goods and services improves.  Points like D that were once unattainable, perhaps because of technological innovation, become attainable.  Macroeconomics is very interested in this outward movement of the PPF over time. 

It’s quite easy to lose sight of the forest for the trees in the study of either Micro- or Macroeconomics.  But by viewing them both through this common lens (i.e. the PPF), we can see that both are at heart concerned with effectively addressing human wants and needs.