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Microeconomics refers to studying decisions about a specific corporation or small business that affect the cost of goods sold. Factors such as prices, resource allocation, government regulatory stipulations, and taxes. Other resources in producing goods and services affecting supply and demand are also examined in microeconomics. An example would be how a major retailer buys summer inventory during the winter months in order to reduce expenses. Another example would be how a company decides to outsource building certain components in order to lower the cost of operations.
Macroeconomics is studying the field of economics affecting a nation or country. It is a birds eye view of how every industry is affected by changes in the gross national product or the high cost of oil. Macroeconomics affects every company rather than a single business. A good example would be how the high rates of unemployment, uncertainty of the stock market, and the lowered interest rates have affected the value of the American dollar. These factors have an impact of the Gross National Product of a nation which is viewed by other nations in decisions to invest in the banking and other industries.
Both of these fields of economics are complementary in the impact one has on the other. The issues faced by individual companies will eventually impact the industry which in turn can influences made by the Federal Reserve. An example of this is what happened with Enron years ago in the fraudulent accounting recording of revenues that led to the company going bankrupt. At first this was a microeconomic issue which affected the employment of thousands of employees, which in turn affected their retirement funds, 401ks, and bank accounts. The federal inquiry eventually led to several other companies being investigated for accounting fraud such as Worldcom, and Arthur Andersen. Once these companies begin court proceedings, the fallout begin to be felt across the country. The accounting industry as a whole was overhauled and new government regulations were drafted by federal agencies. Such as the Sarbanes Oxley legislation that came about in 2002 from the accounting fraud proceedings of several major corporations. This microeconomic issue became a macroeconomic issue that will impact every business that is required to draft certain ethical compliance procedures or face auditor intervention.
Edited by Toneemarie on 6/25/2010 at 3:14 AM EST