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Definition of Economics:

Economics is the social science dealing with how individuals, businesses, and societies make decisions on how to allocate scarce resources.

Detailed Explanation:

Determining the best use of scarce resources or finding alternatives is fundamental to economic theory. Microeconomics focuses on how individuals and businesses make economic decisions, given our limited resources. You may need to choose between going to a movie theater or staying at home and renting a movie because of limited time and money. What do we purchase and why? What and how much do businesses produce? Economists use the law of supply and demand to help us understand the answers to these questions. How do businesses allocate their scarce resources in the production process? What prompts workers to work for a particular company or long hours? When will a company choose to replace labor with capital? Understanding the answers to these economic questions improves our financial health, whether we are individuals choosing whether or not to purchase a car, or a retail chain analyzing where to open a new store.

Macroeconomics examines the aggregate economy. We live in an imperfect world. People lose their jobs. Economic growth is inconsistent. Macroeconomics analyzes relationships between economic growth, inflation, and unemployment. Do government policies help or harm the economy? Governments use fiscal and monetary policies to manage their economies. Should a government increase spending? Where should the government spend its tax revenue? Should the government raise or lower taxes to pay for its programs? How should a tax be structured? Answering these questions assists us in analyzing proposals from our politicians and voting more responsibly. Each decision we make individually or collectively has a cost that includes more than the monetary value. It also includes missed opportunities. Economists study the monetary and non-monetary costs and benefits of these decisions.

Here is a brief video explaining Scarcity and Economics.

Dig Deeper With These Free Lessons:

Economics – Managing Our Scarce Resources
Circular Flow Model – We Depend On Each Other
Opportunity Cost - The Cost Of Every Decision
Supply – The Producer's Perspective
Demand – The Consumer's Perspective
Supply and Demand – Producers and Consumers Reach Agreement

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