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.
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Microeconomics analyzes supply and demand dynamics within individual markets.
Macroeconomics looks at broader economic factors such as GDP, unemployment rates, and inflation.
Opportunity cost is a fundamental concept in economics that represents the value of the next best alternative forgone when making a decision.
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.
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.