Microeconomics deals with decision making by individuals, business firms, industries, and governments. It is concerned with issues such as which orange juice you should buy, which job to take, and where to go on vacation; which products a business should produce and what price it should charge; and whether a market should be left on its own or be regulated.
Macroeconomics on the other hand, focuses on the broader issues we face as a nation. Most of us don’t care whether an individual buys Nike or Merrell shoes. We do care whether prices of all goods and services rise. Inflation—a general increase in prices economy-wide—affects all of us. And as we have already seen, economic growth is a macroeconomic issue that affects everyone.
To aid in our model building, economists use the ceteris paribus assumption: “Holding all other things equal” means we will hold some important variables constant. For example, to determine how many songs you might be willing to download from iTunes in any given month, we would hold your monthly income constant. We then would change song prices to see the impact on the number purchased (again holding your monthly income constant).
Efficiency deals with how well resources are used and allocated. No one likes waste. Much of economic analysis is directed toward ensuring that the most efficient outcomes result from public policy. Production efficiency occurs when goods are produced at the lowest possible cost, and allocative efficiency occurs when individuals who desire a product the most (as measured by their willingness to pay) get those goods and services.
Equity: The fairness of various issues and policies.
Scarcity: Our unlimited wants clash with limited resources, leading to scarcity. Everyone faces scarcity (rich and poor) because, at a minimum, our time is limited on earth. Economics focuses on the allocation of scarce resources to satisfy unlimited wants....