Economics

Definition

Economics is the study of how individuals, businesses, and governments allocate scarce resources to satisfy unlimited wants. It encompasses both microeconomics, which focuses on individual and business decision-making, and macroeconomics, which examines larger economic factors like national productivity and inflation.

5 Must Know Facts For Your Next Test

1. Microeconomics analyzes supply and demand dynamics within individual markets.
2. Macroeconomics looks at broader economic factors such as GDP, unemployment rates, and inflation.
3. Opportunity cost is a fundamental concept in economics that represents the value of the next best alternative forgone when making a decision.
4. The law of diminishing returns states that adding more of one factor of production while holding others constant will eventually yield lower per-unit returns.
5. Market equilibrium occurs where the quantity supplied equals the quantity demanded at a particular price.

Review Questions

• What is the difference between microeconomics and macroeconomics?
• How does opportunity cost affect decision-making in economics?
• What happens to market equilibrium when there is an increase in demand?

Related terms

Supply_and_Demand: A fundamental economic model that explains how prices are determined in a market system.

Gross_Domestic_Product_GDP: A measure of all goods and services produced within a country over a specific time period.

Inflation: The rate at which the general level of prices for goods and services rises, eroding purchasing power.