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Economics is the study of the production and consumption of goods and the transfer of wealth to produce and obtain

those goods.

A study of economics can describe all aspects of a countrys economy, such as how a country uses its resources, how much time laborers devote to work and leisure, the outcome of investing in industries or financial products, the effect of taxes on a population, and why businesses succeed or fail.

Why study economics? There are four main reasons to study economics: (1) to learn a way of thinking; (2) to understand how society functions; (3) to understand global affairs; and (4) to be an informed voter.

1. Dealing with a shortage of Raw Materials. Economics provides a mechanism for looking at possible consequences as we run short of raw materials such as gas and oil. 2. How to distribute resources in society. To what extent should we redistribute income in society? Is inequality necessary to create economic incentives or does inequality create more economic problems. 3. The Principle of Opportunity Cost. Politicians win elections by promising more spending and cutting taxes. This is because lower taxes and more spending is what voters want to hear. However, an economist will be aware that everything has an opportunity cost. Spend more on subsidising free university education, and it means higher taxes and lower spending elsewhere. Giving students 4,000 a year to spend at university may be a noble ideal. But, is it the best use of public money? Are there not better uses of money? 4. Social efficiency. The free market leads to countless examples of market failure. I feel one of the best uses of economics is to provide solutions to overcoming market failure. For example, driving into the centre of town creates negative externalities such as pollution and congestion. There is overconsumption. An economist can suggest a tax on driving into towns to internalise the externality. Of course new taxes are not popular, but, it would provide a better solution for society. You may not want to pay 10 a week to drive into a city centre. But, if it saved you 2 hours of sitting in a jam, then maybe you would be quite happy to pay it.

5. Knowledge When You are Unemployed and waiting in the queue for unemployment benefits, as an economist you will know WHY you are unemployed, which is of course a great comfort.

Definition of 'Opportunity Cost'

1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action. Read more:

Definition of 'Absolute Advantage'

1. The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.

2. Definition of 'Comparative Advantage'

3. A situation in which a country, individual, company or region can produce a good at a 4. 5. lower opportunity cost than a competitor.
The Scope and Method of Economics

The Scope of Economics

Just about anything that has to do with human interaction can be looked at using the insights of economics. Not only do economic principles cover such obvious issues as the state of the economy, world trade, markets, and prices, but they also give insight into such things as family size, crime, politics, and a host of social issues. Microeconomics and Macroeconomics Because economics is so broad, it is divided into specialty areas. The two largest divisions are microeconomics and macroeconomics. Microeconomics examines individual decision-making,

markets for individual goods, and policy issues that deal with specific markets. Macroeconomics, on the other hand, looks at larger economic aggregates such as national and global economies. It is in macroeconomics that we analyze issues such as inflation, unemployment, economic growth, recessions, international trade, and economic development. For an overview of the types of issues dealt with in microeconomics and macroeconomics, please look at the following table.

The Method of Economics

Positive versus Normative Economics

Economics provides us with a way of thinking, and one of the most important aspects of that way of thinking is the distinction between positive economics and normative economics. Normative questions involve value judgments. An example of a normative question is Should we raise the minimum wage? Positive questions, on the other hand, are aimed at determining the implications or consequences of an action. An example of a positive question about the minimum wage would be Will the unemployment rate increase if the minimum wage is raised? Economics equips us to deal better with positive questions than with normative ones, because the latter involve value judgments. But positive questions are often crucial for understanding and examining normative questions. For example, the desirability of raising the minimum wage (a normative issue) depends, in large measure, on whether unemployment goes up, and by how much (a positive issue).

All 3 problems are more clearly explained using a ppf/ppc: 1) What to produce: This problem is what should the economy produce in order to satisfy consumer wants (as seen by demand curves) as best as possible using the limited resources available. If a country produces goods in a way that maximises consumer satisfaction then the economy is allocatively efficient. 2) How to produce: This problem is how to combine production inputs to produce the goods decided in problem 1 as most efficiently as possible. An economy achieves productive efficiency if it produces goods using the least resources possible. A productively effiecient economy is represented by an economy that is able to produce a combination of goods on the actual curve of the PPF. 3) For whom to produce: Should the economy produce goods targetted towards those who have high incomes or those who have low incomes. What sort of demographic group should the goods in the economy that are produced be targetted towards? If the economy is addresses this problem then it has reached preto efficiency or pareto optimality. If all three problems are addressed at any one time then the economy has achieved static efficiency. If the economy achieves static efficiency over a period of time then it is dynamically efficient.