The basis of all economic decisions is scarcity. The wants and needs of people are unlimited and the resources available to a society are limited. The basic questions that each society must make revolve around the allocation of scarce resources. * What goods and services to produce? * How to produce them? * For whom to product them?
These essential questions must be answered in every economy to determine the fundamental goals of the society. How each society handles these questions is determined by the role of government and the people in the decision-making process. Each group of people makes decisions or fails to make decisions that control the flow of money, goods, and services. The control of these decisions determines the type of economy present. How resources are allocated is the process of choosing which needs will be satisfied and how much of the limited resources will be used to satisfy those needs. Allocation by definition indicates choice. Therefore, choosing results in trade-offs in deciding how to use the limited resources. Economics is the science of making effective choices or decisions by examining the alternatives. Economics is the social science that deals with how society allocates its scarce resources among the unlimited wants and needs of individuals that make up that society.
There are two branches that study economics. Microeconomics is the branch of economics that examines the choices of individuals concerning one product, one firm, or one industry. Macroeconomics is the branch of economics that examines the behavior of the whole economy at once.