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Economic Theory

                                  1. WELCOME TO ECONOMICS


                                                       Content

                  1. What Is Economics, and why is it important?
                  2. Microeconomics and Macroeconomics.
                  3. How economists use theories and models to understand economic

                     issues.

                  Key  words:  scarcity,  resources,  macroeconomics,  microeconomics,

            model



                  1. What Is Economics, and Why Is It Important?
                  What is economics? Economics at its core has three basic principles:
                  1. Wants and desires of human beings are unlimited.

                  2. Means or resources needed to obtain desired goods and services are
            limited. This is true no matter who you are or how much money you make.
                  3. The science of economics is primarily concerned with how to best
            allocate  limited  resources  in  a  manner  that  comes  closest  to  fulfilling

            unlimited wants. Recognize that no one will ever ultimately fulfill all of
            these wants and desires because incomes are always limited.
                  Achieving the most desirable allocation of your income in an effort to

            best  fulfill  unlimited  wants  represents  an  economic  problem  of
            optimization under scarcity. Optimum implies finding a solution that is the
            most desirable for the individual, while scarcity suggests that income and
            other resources available are limited.

                  Economics is the study of how humans make decisions in the face of
            scarcity.  These  can  be  individual  decisions,  family  decisions,  business
            decisions or societal decisions. If you look around carefully, you will see

            that scarcity is a fact of life. Scarcity means that human wants for goods,
            services and resources exceed what is available. Resources, such as labor,
            tools,  land,  and  raw  materials  are  necessary  to  produce  the  goods  and

            services we want but they exist in limited supply. Of course, the ultimate
            scarce resource is time – everyone, rich or poor, has just 24 hours in the
            day to try to acquire the goods they want. At any point in time, there is

            only a finite amount of resources available.
                  Think  about  all  the  things  you  consume:  food,  shelter,  clothing,
            transportation,  healthcare,  and  entertainment.  How  do  you  acquire  those


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