Chapter 1-ECO 1104

Microeconomics and Life - Economics is the study of how people manage resources o Economics is divided into two broad fields Micro-economics is the study of how individuals and firms manage resources Macroeconomics is the study of the economy on a regional, national, or international scale - Prior to the Great Depression, economics was dominated by the classical theory o The classical theory states that the economy balances itself out where supply and demand interact and that if the supply and demand aren't equal, the market will adjust itself so the equilibrium will prevail. The Great Depression disproved this as both the goods-and-services market and the labour market had a surplus, the markets were not in equilibrium. Therefore, demand does not always equal supply - Keynesian Economics: New theory that economics follows was introduced by John Maynard Keynes, he ecplained why markets may not need to be in equilibrium for them to operate. Economists tend to break down problems by asking a set of four questions: - What are the wants and constraints of those involved? - What are the trade-offs? - How will others respond? - Why isn't everyone already doing it? Scarcity What are the wants and constraints of those involved? - Scarcity is defined as the condition of wanting more than we can get with available resources Performance and Decision Making What are the trade-offs?
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