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Economics is best defined as the study of scarcity, better yet, the study of how a limited number of resources can satisfy an unlimited number of wants in an economy. Economics answers the who? and what? questions in a society who will receive the goods, and what they will receive. One who studies the field of economics is called an economist.
Before we delve into the field of economics, we must differentiate between the two primary types of economics: Macro Economics (the study of one or more whole economies) and microeconomics (the study of behaviors of firms, businesses, and individuals and their decisions involving scarcity). While both fields deal directly with economics, they have obvious contrasts.
Macro Economics (from the Greek prefix macro- meaning "large" and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies. With microeconomics, Macro Economics is one of the two most general fields in economics.
Macroeconomics can be thought of as the “big picture” version of economics. Rather than analyzing individual markets, macroeconomics focuses on aggregate production and consumption in an economy. Some topics that macroeconomists study are:
- The effects of general taxes such as income and sales taxes on output and prices
- The causes of economic upswings and downturns
- The effects of monetary and fiscal policy on economic health
- How interest rates are determined
- Why some economies grow faster than others
Microeconomics ; Those who have studied Latin know that the prefix “micro-“ means “small,” so it shouldn’t be surprising that microeconomics is the study of small economic units . The field of microeconomics is concerned with things like:
- Consumer decision making and utility maximization
- Firm production and profit maximization
- Individual market equilibrium
- Effects of government regulation on individual markets
- Externalities and other market side effects
The Relationship Between Microeconomics and Macroeconomics
There is an obvious relationship between microeconomics and macroeconomics in that aggregate production and consumption levels are the result of choices made by individual households and firms, and some macroeconomic models explicitly make this connection. Most of the economic topics covered on television and in newspapers are of the macroeconomic variety, but it’s important to remember that economics is about more than just trying to figure out when the economy is going to improve and what the Fed is doing with interest rates.
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