Economic Analysis

Means?

» Economics is a social science that studies how individuals, businesses,

governments, and societies allocate their scarce resources to satisfy their
unlimited wants and needs.
» It involves the analysis of production, distribution, and consumption of
goods and services.
» Economists examine the behavior of individuals and entities in making
choices about resource allocation and how these choices impact the overall
well-being of society.
 Key Concepts
– Scarcity: Resources such as time, money, and natural resources are limited, while human wants
and needs are virtually unlimited. Scarcity is the fundamental economic problem that necessitates
decision-making about resource allocation.

– Supply and Demand: The interaction of supply (the quantity of a good or service that producers
are willing to offer) and demand (the quantity that consumers are willing to buy) determines the
equilibrium price and quantity in a market.

– Opportunity Cost: Every decision involves trade-offs, and the opportunity cost is the value of the
next best alternative forgone when a decision is made. It reflects the idea that resources used for
one purpose could have been used for another.

– Marginal Analysis: Economists often analyze decisions at the margin, focusing on the additional
or incremental benefits and costs of a small change in an activity or decision.
Contd..
– Markets and Prices: Markets play a crucial role in coordinating economic activity. Prices, determined
through the interaction of supply and demand, convey information about the scarcity and desirability of
goods and services.

– Macroeconomics and Microeconomics: Economics is often divided into macroeconomics, which studies
the overall performance of the economy, including topics like inflation, unemployment, and economic
growth, and microeconomics, which examines the behavior of individual consumers, firms, and
industries.

– Government Intervention: Economists study the role of government in the economy, including how
government policies, such as taxation, regulation, and monetary policy, influence economic outcomes.

– International Trade: Economics explores the benefits and challenges of international trade, including
comparative advantage and the impact of globalization on economies.