Economics is basically the understanding of how different economies function. Economics is the study of how to best allocate scarce resources among competing uses. Scarcity in the economy is the main problem. There are not enough resources to keep up with the demand for them. Within the discipline of economics, there are two areas of study: Micro and Macro Economics.
Microeconomics is the study of an individual economy, or of the different segments within the larger economy, while macroeconomics is the study of aggregate economic behavior, or the economy as a whole(Madura 103). The main goal of macroeconomics is to determine the impact of consumer spending on total output, employment, and prices.
To fully understand economics as a whole, we must understand that there are limitations set by the available resources that are used to produce goods and services. These resources that are used in the manufacturization of goods and services are called factors of production. Land, labor, capital, and entrepreneurship. Land is the place used to produce the goods. Not only the physical land, but also resources such as oil, air, and water. “Labor refers not only to the number of people on the workforce, but the quality of the workers in the workforce (Mandura 115)”. Capital, the third factor of production refers to the goods used in further production. And finally, entrepreneurship is defined as the assembling of resources to produce new products.
A major area of concern among economists is opportunity costs. Opportunity costs are the products that are given up for another product. Because we have a limited amount of resources, we must find the most efficient way to use them. Production possibilities are the alternative combinations of all final goods and services that can be produced in a given time period with all available resources and technology.
The main objective of economist is to maintain maximum output in production. In order to reach maximum efficiency, there are three questions that economists have to address. What to produce? Who are we going to produce these goods for? And, how are we going to produce it? All of these questions were answered by Adam Smith, a famous economist. Smith believes that there is such a thing as an “invisible hand” of economics that acts as the decider to all the basic three economic questions (Group Presentation).