What is Economics? Microeconomics versus Macroeconomics Understanding the Basics
Economics is a social science that studies the production, distribution, exchange, and consumption of scarce resources (wealth).OR
Economics is a social science that deals with how consumers, producers, and societies choose among the alternative uses of scarce resources in the process of producing, exchanging, and consuming goods and services.
Microeconomics
Microeconomics studies the behavior and action of individual agents within the economy like households, workers, and small businesses. Microeconomics also studies the small units of the economy.Macroeconomics
Macroeconomics is the study of the economy as a whole, like employment and unemployment, inflation, aggregate demand, and aggregate supply, in an economy, etc. The main theme of Macroeconomics is the study of the large units of the economy.Microeconomics versus Macroeconomics
As with most disciplines, the field of economics can be divided into several branches. Microeconomics and macroeconomics are two major branches of economics. Microeconomics focuses on the economic actions of individuals or specific groups of individuals. For example, micro economists are concerned with the economic behavior of consumers who demand goods and services and producers who supply goods and services, and the determination of the prices of those goods and services. Macroeconomics focuses on broad aggregates, such as the growth of the nation’s gross domestic product (GDP), the gaps between the economy’s potential GDP and its current GDP, and trade-offs between unemployment and inflation. For example, macroeconomists are concerned with identifying the monetary and fiscal policies that would reduce inflation, promote the growth of the nation’s economy, improve the nation’s trade balance (exports minus imports), and reduce the national debt. Macroeconomics explicitly accounts for the interrelationships between the nation’s labor, product, and money markets and the economic decisions of foreign governments and individuals.Positive Economics
An approach to economies that seeks to understand behavior without making judgments about the outcome. It is also called descriptive economics.Normative Economics
An approach to economies that analyzes outcomes of economic behavior, evaluates them as good or bad and may prescribe a course of action. It is also called prescriptive economics.Positive Economics versus Normative Economics
The study of economics also can be divided between positive economics and normative economics. Positive economics focuses on what-is and what-would happen-if questions and policy issues. No value judgments or prescriptions are made. Instead, the economic behavior of producers and consumers is explained or predicted. For example, policymakers may be interested in knowing how consumers and producers would respond to a tax cut or a tax hike. Or, policymakers may be interested in to what degree the problem of obesity may be mitigated if a notable tax is placed on sugar-sweetened beverages.Normative economics focuses on determining “what should be” or “what ought to be.” For example, policymakers might inquire as to which of several alternative policies should be adopted to maximize the economic welfare of producers and consumers. At the micro level, an automobile manufacturing plant might be interested in knowing the number of vehicles it should be produced to maximize profit.
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