Government policy creates microeconomic effects whenever the implementation has altered the incentives and inputs for individual economic decisions. Such changes have come in various forms similar to:

  • Tax policy
  • Fiscal policy
  • Tariffs
  • Legal tender laws
  • Subsidies
  • Regulations
  • Licensing and;
  • Public/private partnerships

These policies are capable of manipulating both the benefits and costs that individual actors are facing in almost every aspect of life.

Micro and Macro Level Effects of Policy

Studying models of microeconomics are about the interaction of the supply & demand within specific actors and individual markets. If the government policy mandated artificially high volume wage and then leads to more cases of unemployment, the microeconomics are described as how the floor on the labor costs is changing the inputs for firms. It isn’t concerned in measuring aggregated level of the unemployment in the economy as a whole.

Then, there is macroeconomics. These are operating with the key assumptions that are based on the observable human behavior. It is assuming that individual actors are utility maximizing and that they’re making rational decisions as per known information. Furthermore, it is assuming that there are scarcity in resources and thus, it could be assigned with monetary value and that it is presenting consumption is more preferred for future consumptions.