Economics

Analyze the following statement using course material, "why is the science of economics concerned with the activity of households and individuals at one end of the scale, and that of multinational corporations and governments at the other?"

Economics is the study of how people use their limited resources to satisfy their wants and needs. Since all of the resources are scarce but people’s wants are unlimited, individuals and nations have to make decisions of how to allocate their resources most efficiently to obtain the maximum satisfaction of their wants. Fred E. Foldvary, an economist, stated that, “Economics is a social science, dealing with the activities of people, and it specializes in the production, distribution, exchange, and consumption of wealth, or the material needs and desires of human beings”. The science of economics composes of two distinct areas, which are microeconomics and macroeconomics. Microeconomics studies how households, individuals and firms make decision regarding the allocation of limited resources and price of goods and services. That is to say, microeconomics focuses on supply and demand, and how people take interaction in various markets. Macroeconomics, on the other hand, involves the “sum of total economic activities, dealing with the issues of growth, inflation, and unemployment and with national economic policies relating to these issues”, and the effects of government actions on them. From the perspectives of microeconomics and macroeconomics, it is obviously realized that “science of economics concerned with the activities of households and individuals at one end of the scale, and that of multinational corporations and governments at the others”.

Microeconomics, in an attempt, analyzes the certain respects of firm and human behavior to understand the choices made by individuals and households. It looks into the interaction between individual buyers and sellers, the factors that affect the decision-making process of buyers and sellers. In others words, microeconomics show us “how individuals and firms respond to changes in price and they demand what they do at particular price level”. According to Arnold C. Harberger, “The strength of microeconomics comes from the simplicity of its underlying structure and its close touch with the real world. In a nutshell, microeconomics has to do with supply and demand, and with the way they interact in various markets”. For example, Agriculture industry deals with the demand and supply of agricultural chemicals and products, farmland, farm labor and related factors of agricultural production. In doing business, people offer goods and services, and in fact, most of them expect to maximize their profits. Then they have to determine the way they can obtain the greatest profits. In addition, in the market, people try to achieve the most from what they have to offer and to satisfy their demands as much as they can. This process helped them to specify what they will supply and what they will demand.

While microeconomics focuses on factors that affect the decisions made by households and individuals, macroeconomics concerns the performance of the economy as a whole. Macroeconomics, in an attempt, studies the movements and trends of the economy as a whole to forecast economic conditions which helps individuals, corporations and governments to make better choices and decisions. In his writing Macroeconomic Analysis, Reem Heakal stated that, “Macroeconomic analysis broadly focuses on three things: national output (measured