Understanding Economics: Micro, Macro, and History
Understanding Economics
Economics studies how a society uses scarce resources to achieve its objectives.
Microeconomics
Microeconomics studies the behavior of individual economic agents. It examines individual firms producing goods and consumers. Studies include price formation, consumer preferences, employment costs, etc.
Macroeconomics
Macroeconomics studies the economy of a country, including employment, inflation, and economic policy. It also considers the law of large numbers.
The Methodology of Economics
The methodology of economics consists of three phases:
- Observe the phenomenon and collect information.
- Formulate a hypothesis.
- Verify the hypothesis.
Scarce Resources
Scarce resources are classified into three categories:
- Raw Materials: These are free gifts of nature, such as water, air, and land that have not been previously processed.
- Work: The labor of people, either physical or intellectual.
- Capital: Refers to machinery and not money.
These goods are scarce because they are not unlimited.
Types of Assets
- Consumer Goods: Designed to meet a need and used by a person or family.
- Capital Goods: Produced by companies to produce more goods (e.g., machines).
- Intermediate Products: Produced by a company and become part of another good.
- Durable Goods: Goods that can be used more than once.
- Nondurable Goods: Goods that are used once.
- Public Goods: Goods that do not exclude any consumer.
- Private Goods: Goods that restrict certain types of consumers.
History of Economics
Mercantilist School
The Mercantilist school believed that a country’s wealth was based on the amount of precious metals it possessed. To increase precious metals, they proposed expanding territories in search of those metals and protecting their markets from foreign imports.
Physiocratic School
The Physiocratic school argued that a country’s wealth was due to the ability of the land to produce. According to this school, there were three types of economic agents: farmers (who worked the land), landlords (who owned the land, such as nobles), and merchants and craftsmen (who worked in commerce).
Classical School
The Classical school is one of the most important in history. Its central idea was economic liberalism, and its chief representative was Adam Smith. He maintained that a country should be based on the free operation of its market. He also stated that the market ought to have several firms to generate competition and avoid monopolies. He also believed companies should share information. Adam Smith was against state intervention. He thought that economic growth was based on the division of labor.
Marxist Economics
Marx sided with the workers. He believed that in the coming years there would be a revolution of the proletariat and said that this was going to take over the industries, this never happened. He also wanted a society without social classes (he wanted a communist society).
Keynesian Economics
Keynesian economics was the most important school of the 20th century. He lived during the economic crisis of the 1930s. To resolve the crisis, he created the International Monetary Fund and the World Bank.
Market
A market is a physical or virtual place where goods and services are traded, where production, supply, and demand meet.
Price
Price is the monetary value of a property, set by supply and demand. It may vary according to the number of competitors, quality, geographic location, and cost of the undertaking.