Economics is a social science focused on how people allocate limited resources to satisfy unlimited wants.
Key aspects include:
Financial resources
Time
Talent
Energy
Resource Allocation
Individuals make choices to prioritize their resources.
Choosing one allocation often means less ability to pursue another want.
Economics studies these choices at both individual and governmental levels.
Theories and Models
Economics uses theories and models to simplify and draw conclusions about the world.
These tools help understand various influences, like price determination.
Categories of Economics
Macroeconomics
Focuses on the big picture of the economy as a whole.
Key aggregates include:
Inflation rate
National unemployment
Gross Domestic Product (GDP): total dollar value of goods/services produced annually.
Microeconomics
Analyzes smaller components of the economy.
Examines decisions made by individuals, households, and businesses.
Examples include:
A student's time allocation for studying.
A family's decision to purchase a vehicle.
Behavior vs. Thought
Economics focuses on actual behavior and actions, not necessarily how people think.
There can be inconsistencies between what people express in surveys and their actual behaviors.
Interrelation of Macroeconomics and Microeconomics
Both areas are interconnected.
Aggregate individual behaviors contribute to national economic indicators.
Example: Low consumer spending leads to high unemployment, affecting the entire economy.
Current economic conditions, like unemployment rates, influence individual spending habits.
High unemployment leads consumers to prioritize necessities over discretionary spending.
Conclusion
While macro and microeconomics can be studied separately, understanding their interrelation is essential for a comprehensive view of economic behavior.