An introduction to Economics
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Understanding the very essence of economics starts with acknowledging its definition - it's the study of how individuals, firms, and governments make choices on allocating limited resources to satisfy their unlimited wants and needs.
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In reality, resources (including time, money, and human labour) are scarce, however desires and requirements are numerous; this is what constitutes the economic problem, also known as the problem of scarcity.
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Key concepts linked to the economic problem include opportunity cost, economic systems, and productivity.
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Opportunity cost relates to the value of the next best alternative forgone when a decision is made. It's the "real" cost of making a choice as you're always giving up the opportunity to do or have something else.
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Economics interprets the working of different economic systems like capitalism, socialism, and communism, which are solutions proposed to solve the economic problem.
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Productivity is a crucial idea in comprehending the economic problem. It comprises the efficiency with which factors are used to produce goods and services.
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The basic economic problem will always exist because human wants are infinite while resources are limited. This results in the need to make choices.
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Economics also deals with the concept of scale and scope of business operations.
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Economists employ models to understand and predict how certain factors affect the economy. These models involve making assumptions to simplify complex situations.
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Economics can be broken down into two distinct areas of study: Microeconomics and Macroeconomics. Microeconomics focuses on the actions of individual agents within the economy, like households and businesses. Macroeconomics, on the other hand, looks at the economy as a whole.
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The economic problem isn't only about how to use and allocate resources, but also about who should make these decisions - individuals, firms, or governments.
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Solving the economic problem chiefly involves making decisions about the allocation of resources, which will always lead to some degree of societal impact.
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Economics also encompasses the study of supply and demand and what effects it has on the prices of goods and services in the market.
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An essential part of understanding economics includes knowing its key goals like economic growth, low unemployment, and steady inflation.
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Unresolved economic problems can lead to serious societal issues, like poverty and inequality, making the subject absolutely vital in understanding society.