Economics deals with scientific study of how people allocate and use the scarce resources to meet their unlimited wants. It aims at putting to better use the resources which are always scarce. Scarcity and choice prompts individuals to forego some of their needs so as to meet the most urgent ones first. Therefore, there is an alternative a person must forego. The price of this alternative is the opportunity cost. Scarcity and choice are all about weighing benefits of alternatives that a person has. For example, a consumer may choose to build a residential house instead of buying a private car. This is because the house provides shelter to the family which is a basic human want. In doing so, he/she can continue using public means of transport but his/her family securely sheltered.
As a science, economics can either be positive or normative. Positive economists provide solutions to the society’s economic problems. It recognizes human decisions as facts which can be substantiated with actual data. For instance, a fall in price of a commodity leads to a corresponding rise in its quantity demanded. Positive economics deals with realistic situations based on causes and effects of facts. On the other hand, normative economists prescribe the course of action which is desirable and necessary to achieve social goals. For instance, it may prescribe that government should offer free education to the poor. It thus ethically expresses what should be done to deal with idealistic situations. These two scientific perspectives of economics enhance rapid economic growth in the society.
Economists divided economics into two branches; microeconomics and macroeconomics. Microeconomics focuses on how individual consumers, households and firms choose to allocation of the scarce resources to meet their unlimited needs. On the other hand, macroeconomics explores the problems of scarcity and choice in the whole economy. It examines problems of unemployment and inflation.
These branches can be distinguished in various ways. Microeconomics, in its definition only looks at a particular firm/household, individual price, income/wage and industry. On the other hand, macroeconomics deals with aggregate level of output of an economy by comparing the size of national income with the general price level.
Secondly, microeconomics aims at optimizing allocation of resources for maximum individual satisfaction while macroeconomics seeks to achieve full employment and development of economic resources. Another difference is that demand of a particular commodity in microeconomics depends on the consumer’s future expectations on the price of that commodity. However, demand in macroeconomics is dependent on the household’s expectations on the price of all products.
Supply in microeconomics depends on the profits that firms expect by selling their products and services a given prices. Macroeconomics determines supply from producers’ expectations and total production costs that they incur in the production process. Again, microeconomics engages in disaggregation assuming that there is full employment while macroeconomics aggregates resources by assuming that their allocation is constant.
Finally, microeconomics achieves equilibrium when the quantity demanded equals the quantity supplied. However, in macroeconomics an equilibrium point is where aggregate demand equals aggregate supply. Microeconomics also allocates prices on individual goods and services while macroeconomics determines the price level in an economy at the equilibrium point.
In conclusion, economics guides human beings on how to make good choices between their competing wants. It also helps individuals to do wise allocation of the scarce resources to their unlimited needs.
References
Education. McEachern, W. A. (2011). Economics: A Contemporary Introduction. Ottawa:
Cengage Learning.
Yomba, S. J.-P. (2009). Micro Economics to MacRo Economics: The Concept of Market
Exchange Rate. Indiana: AuthorHouse.
