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Economics is a social science concerned with the production, distribution, and usage of goods and services. It is the study of how society used its resources. Economics focuses on four major factors of production, which are;
Economics is then divided into two major categories of study, which are macroeconomics and microeconomics.
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Macroeconomics is a branch of economics that is used to study the behavior and performance of the economy as a whole. It focuses on major economic changes such as growth rate, unemployment, inflation, and gross domestic product. It analyzes all the aggregate indicators and the factors that affect the economy. Government institutions and corporations use macroeconomics models in formulating economic strategies and policies.
Principles of macroeconomics
||Macroeconomics is used to analyze the wealth generated by a nation. This includes the measure of National Domestic Product, Gross National Product, and Net National income. The purpose of these measurements is to see the financial health of a country.
||Inflation is the basic study of how the prices of goods and services rise over time. Inflation is an important topic in economics since it helps to negate the negative impact of economic recession.
||Economic output focuses on the study of goods and services that a national economy produces.
||This section looks at trade between different countries. It focuses on goods, services, and raw materials. International trade is important for the global economy.
Major theories of macroeconomics
1. Monetarism theory – This theory focuses on the macroeconomic effects of the money supply and the banking sector's role in an economic system.
2. Neoclassical theory – This theory states that people have rational expectations about the effect of government policies which negates the impact of the policies. It adds that people will maximize utility while institutions will maximize profits.
3. Central Tenets – This theory focuses on opportunity cost, capital and interests, inflation, and business cycles.
4. Keynesian economies – This theory was developed in response to the massive unemployment rate in the 1930S. It noted that aggregate demand for production was the main source of business-cycle instability.
5. Classical economies – This theory states that flexible prices ensure market equilibrium to maintain full employment and production.
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Microeconomics is the study of firms, individuals, and household behavior in allocating resources and decision-making. It deals with people's choices and the factors that influence those decisions, and how these choices affect prices, supply, and demand.
Basic concepts of microeconomics
• Utility theory – This theory states that consumers will choose to buy and use a combination of goods that will maximize their happiness depends on how much income they have available to spend.
• Production theory – This is the process of converting inputs into outputs. Producers will choose a combination of inputs that will maximize the output.
• Price theory – This theory states that the law of supply and demand determines the prices of goods and services. It adds that in a perfectly competitive market, the prices demanded by consumers that what is supplied by producers.
• Incentives and behaviors – This explains how people as individuals or groups react to situations that face them.
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Public economies are the study of government policies through economic efficiency and equity. It states the importance of a government in growing an economy and highlights whether the government should participate in economic markets. The study on public economics highlights government policies regarding taxation and expenditures. Public economics covers areas such as;
• Government taxation policies
• Government expenditures
• Analysis of government and market failure
• The design of public policy
• Public finance
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1. International political economy covers the impact of international sanctions, international conflicts, international negotiations, international agreements, and economic nationalism.
2. International monetary economics – It is the study of the flow of money across different countries and its effect on the economy.
3. International finance – It is the study of the flow of capital across countries and international financial markets and the effect of the movement on exchange rates.
4. International trade covers the flow of goods and services across international boundaries based on demand and supply factors, international factor movements, economic integration, and other factors such as trade quotas and tariff rates.