11 Economics -- Basic Concept of Economics and Allocation of Resources

Microeconomics is often called price theory to emphasize the important role that prices play in determining market outcomes. Microeconomics explains how the actions of all buyers and sellers determine prices and how prices influence the decisions and actions of individual buyers and sellers.

Macroeconomics is the study of aggregates; as it studies the economy as a whole, rather than the individual economic units as a consumer or a producer.

Macro-economics is also called the income and employment theory because it deals with determination of equilibrium level of income and the corresponding level of employment in the country.

The four basic problems of an economy, which arise from the central problem of scarcity of resources are:

What to produce?

How to produce?

For whom to produce?

What provisions (if any) are to be made for economic growth?

Major points of Lionel Robbins definition of Economics:

1 - Ends (Unlimited Wants)

2 - Means (Scarce Resource)

3 - Alternative Uses.

Marshall's definition restricted economics as a subject to only analyze the material aspects of human welfare. Non-material aspects of welfare were ignored.

This is because it divides the economy in slices, parts or individual units for the purpose of in-depth study.

Macroeconomics is used in business decision-making to help understand the economy as a whole and the effects of fiscal and monetary policies on individual businesses. By understanding this information, businesses can make more informed decisions about their own operations.