Economics is the study of how people satisfy their needs and wants, and how society manages its scarce resources.
Economists study how people make decisions: how much they work, what they buy, how much they save, how they invest.
Needs
Basic necessities a person must have to survive.
For example: food, water, warmth, shelter, clothing.
Wants
Desires people have for things beyond survival.
For example: bigger homes, phones, and similar.
Statement
Positive Statement
A descriptive claim about how the world is. Can be tested.
For example: higher interest rates encourage people to save more.
Normative Statements
A prescriptive claim about how the world ought to be. Involves values, ethics, and political philosophy, not just facts.
For example: the government should tax the rich to help the poor.
Types
Microeconomics
Study of how households and firms make decisions and interact in specific markets. Deals with individual prices, consumption, and production. Simpler in scope, easier to isolate variables.
Macroeconomics
Study of economy-wide phenomena. Deals with national income, total output, total consumption, and the general price level. More complex due to interdependencies across sectors.
Three Key Issues in Economics
- What should be produced, and how scarce resources are allocated between the possible kinds of production.
- How it should be produced, and which production procedure to use, weighed against its efficiency.
- For whom it should be produced, and how output is distributed among the final customers.