o Economics is a method of analyzing individual and social behavior, especially as it
relates to market phenomena.
o For most presentday economists scarcity is the focus of analysis… yet … it is
misleading to suppose that financial resources are scarce like real/physical resources
Macroeconomics vs. Microeconomics
o Macroeconomists are interested in the economic system as a whole, while
microeconomists are mainly concerned with the study of individual markets or
agents in isolation.
o Microeconomics deals with questions like what should be produced? What is the
‘opportunity cost’ from consuming now compared to saving now (in order to
o Microeconomics is concerned with the allocation of resources in individual markets
(a bit more of this, a bit less of that)
o In macroeconomics, we ignore allocation, and focus on aggregate output and overall
prices, looking at the economywide issues of growth, inflation, and unemployment.
o Macroeconomists deal with aggregates (total ): the production of the whole national
economy, the level of unemployment in the nation or province, overall exports to and
imports from foreign nations, the overall rate of inflation.
o Macroeconomics also deals with public policie that affect the entire economy:
monetary policy (interest rates/money supply), fiscal policy (taxation/government
spending) as well as exchange rates.
Fallacies of Composition
o Logic at the micro level does not necessarily apply to the macro level
o The most famous example is the ‘thrift paradox’:
o If all households attempt to increase their rate or level of saving there is the
potential for aggregate income to fall (due to lower consumption spending)
Why Economists (Sometimes) disagree?
• Reasons for disagreements: Imperfect Information, Assumptions and Value