Economics is defined as the study of how the forces of supply and demand allocate scarce resources. Economics can be subdivided into microeconomics, which examines the behavior of firms, consumers and the role of government; and macro economics, which looks at inflation, unemployment, industrial production, and the role of government (Investor Word, 2008). Economics can be further divided to include positive economics and normative economics. Positive economics is the study of what is, and how the economy works and normative economics is the study of what the goals of the economy should be. Simply put positive economics looks at how things such as current gas prices directly affect individual buying power and how that buying power affect the economy as a whole. Normative economics looks as how the economy would be affected if certain practices were put into play, for example; if government was implement a law stating for every five gallons of gas a individual purchases he or she would be given one gallon free of charge.
Microeconomics is defined as the study of individual choice and how that choice is influenced by economic forces. Microeconomics studies such things as pricing policy of different firms, household decisions regarding what to buy and when to buy, and how markets allocate resources among alternate goods. Microeconomics looks at the smaller picture and focuses more on basic theories of supply and demand and how individual businesses decide how much of something to produce and how much to charge for it. Microeconomics focuses on supply and demand and other forces that determine price levels for specific companies in specific industry sectors ( Investopedia,2008). Macroeconomics is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. Macroeconomics can be used to analyze how best to influence policy...
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