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Economic Theory
issues, you will understand and be able to evaluate the writer’s argument.
When you hear classmates, co-workers, or political candidates talking
about economics, you will be able to distinguish between common sense
and nonsense. You will find new ways of thinking about current events
and about personal and business decisions, as well as current events and
politics. The study of economics does not dictate the answers, but it can
illuminate the different choices.
Economics is concerned with the well-being of all people, including
those with jobs and those without jobs, as well as those with high incomes
and those with low incomes. Economics acknowledges that production of
useful goods and services can create problems of environmental pollution.
It explores the question of how investing in education helps to develop
workers’ skills. It probes questions like how to tell when big businesses or
big labor unions are operating in a way that benefits society as a whole and
when they are operating in a way that benefits their owners or members at
the expense of others. It looks at how government spending, taxes, and
regulations affect decisions about production and consumption. It should
be clear by now that economics covers a lot of ground. That ground can be
divided into two parts: Microeconomics focuses on the actions of
individual agents within the economy, like households, workers, and
businesses; Macroeconomics looks at the economy as a whole. It focuses
on broad issues such as growth of production, the number of unemployed
people, the inflationary increase in prices, government deficits, and levels
of exports and imports. Microeconomics and macroeconomics are not
separate subjects, but rather complementary perspectives on the overall
subject of the economy.
To understand why both microeconomic and macroeconomic
perspectives are useful, consider the problem of studying a biological
ecosystem like a lake. One person who sets out to study the lake might
focus on specific topics: certain kinds of algae or plant life; the
characteristics of particular fish or snails; or the trees surrounding the lake.
Another person might take an overall view and instead consider the entire
ecosystem of the lake from top to bottom; what eats what, how the system
stays in a rough balance, and what environmental stresses affect this
balance. Both approaches are useful, and both examine the same lake, but
the viewpoints are different. In a similar way, both microeconomics and
macroeconomics study the same economy, but each has a different
viewpoint. Whether you are looking at lakes or economics, the micro and
the macro insights should blend with each other. In studying a lake, the
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