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Three Important Concepts in Economics

In recent years, economics has become one of the most popular courses taken by undergraduates all over the world. In fact, a recent survey showed that economics has been the preferred major by more than half of all college students. There are many reasons why economics is so popular, but one of the most important is because it provides a basis for planning. Without economics, there would be no system of control in any economic activity-however, if you plan your economy well, you can actually make a profit!

Economists divide economics into microeconomics and macroeconomics. Microeconomics concerns itself with the decisions of individual households, firms, and private citizens within a community or country. Microeconomics is related to the production, distribution, consumption, distribution, productivity, investment, saving, and market economy. Macroeconomics, on the other hand, concerns itself with the overall performance of the national economy as a whole. Macroeconomics includes such aspects as inflation, financial stability, interest rates, international trade, government finance, and monetary policy.

Microeconomics deals mainly with the movement of goods and services from one stage of the production process to another. For example, when I order a car, I have to estimate how much I want to spend, how long it will take to get to my destination, how many miles I plan to drive, and what rates I will pay for gasoline. All these are microeconomics considerations. But they do not touch upon the largest aspect of economics: the economy of society! The way that society uses the productive resources it creates is the foundation of economics.

Let me give you an example. Say that I want to purchase a pair of running shoes at a local store. Before I decide to shop, I want to think about the factors that are relevant to determining the price of running shoes. Two of these factors are demand and supply.

Demand refers to how many pairs of shoes I can buy in a certain period of time, and how much I can sell to the store. Supply, on the other hand, refers to how many pairs of shoes in the store needs to buy to accommodate all of my purchases. When I add up the effect of both demand and supply, I arrive at a macroeconomics concept called elasticity. Elasticity is a key concept in economics because it describes how changes in the supply of some good will tend to affect prices. An important economic concept of elasticity is the fact that firms that experience increases in demand for their products will adjust their prices to match the changes. If I live in a state with high unemployment, there is a higher chance that I will be able to purchase the same item for less money, or more money, than I would have previously.

The third major macroeconomic concept in economics is efficiency. This refers to how efficiently any given economic activity is conducted. Economists try to identify the many different ways in which an economic activity occurs, as well as how these actions affect the economy. Economic efficiency is closely related to the concept of production, and the way that different goods and services are produced.

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