Chapter 1: Overview. Economics is defined as the study of choice under conditions of scarcity. What is Scarcity?. Scarcity: is the problem of infinite human needs and wants, in a world of finite resources. Society has insufficient productive resources to fulfill those wants and needs.
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Economics then studies how economic agents use the resources with which they are endowed to their best ability in order to acquire the goods and services they most desire.
The model assumes people weigh the relative costs and benefits of a decision at the margin. The optimal level of activity will occur where marginal benefit = marginal cost
Macroeconomics focuses on the overall economy.
Microeconomics focuses on smaller economic units such as individuals, households, firms, and industries.
Microeconomics studies the behavior of smaller economic units such as individuals, households, firms, and government and their interactions in markets.
The study of economics involves describing events, analyzing events, making predictions, and prescribing policy recommendations.