Economics: The Study of how society deals with scarcity.

Here is a brief article on the introductory components of any economy with a macroeconomic slant.

In the economy we expect to find these four components: resource endowment, technology, preference, institutions.

Some key terms that you should be aware of include:

Scarcity: Resources are limited in any environment relative to the needs and desires of the people who control them.

Opportunity cost: value of most highly valued foregone alternative; every benefit has a cost. Another way to look at it is trade offs –> hence in this system people will respond to incentives.

So we can create a broad understand of the economics by stating:

ECONOMICS: –> Scarcity –> Opportunity Cost –> Response to Incentives

An example of this relationship can be made when we use the law of demand:

Whereby if price (p) of a good or service increases; opportunity cost of consuming good will increase; therefore consumers respond by decreasing their demand.

Generally when discussing the economy in introductory and broad strokes you use ‘best case scenarios’, like perfectly competitive markets, in examples.

Perfectly Competitive Markets: is the amount any single buyer (or seller) offers to purchase (sell) in the market is small relative to the total quantity transacted. Thus the buyer takes prices as gives and choosing quantity based on prices.

Another important term:

Equilibrium: decisions of producers are consistent with those of consumers. Only at this price is there no pressure for change. a set of choices for the individuals and a corresponding social state such that no individual can make themselves better off with an alternate choice.

Here is a diagram I drew to offer an image of this process.

[tags]Perfectly Competitive Markets, scarcity, opportunity cost, macro, macroeconomics, economy, demand, supply[/tags]