Understanding Economics- A Summary

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Economics can be a complex concept to understand, as it’s quite a broad discipline. At a basic level, however, it is the study of what constitutes rational human behaviour in the endeavour to fulfil needs and wants. Every individual has certain needs and wants, so when they have resources at their disposal, they have to decide how to make the best use of these resources in order to satisfy these needs or wants. Scarcity is another factor that affects how resources are spent. Scarcity is the tension between limited resources and unlimited wants and needs. In other words, when you have numerous wants and needs to satisfy, but you don’t have enough resources to fulfil those needs and wants. 

Economic systems are defined by the way in which things are produced or by how those things are allocated to people. 

In order to gain a proper understanding of economics, one needs to consider that there are two main vantage points from which the economy is studied; namely: microeconomics and macroeconomics. 

Microeconomics analyses certain aspects of human behaviour and basically shows how individuals and businesses respond to changes in price and why they demand what they do at particular price levels. 

Microeconomics is the study of individual decision-making, based on a number of factors, such as supply and demand, scarcity, opportunity cost, elasticity and exchange rates.  

For instance, the amount of goods available in a particular market as well as the demand for those goods, affect decision-making. Some individuals may have to decide between buying one item instead of another. Elasticity is how much the price of something can fluctuate before it has a negative impact on sales. This is also an important factor in the decision-making process.  

Macroeconomics examines the total output of a nation (Gross Domestic Product) and the way the nation allocates its limited resources. It is concerned with monetary and fiscal policy and looks at decision-making at a national and international level. 

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