Introduction to Economics: Scarcity, Choice, Microeconomics, and Macroeconomics

Economics is defined as the study of the allocation of scarce resources among various competing ends or goals.
These goals or ends are determined by human desire, which can manifest differently based on the nature of the economic system.

Fundamental Imbalance: Human beings exist in a world where unlimited human desire cannot be fully accommodated due to physical limitations on the growth rate of resources or commodities.
This imbalance arises because human desires or wants can grow and expand rapidly, while the economic system's ability to fulfill these wants at any given moment is inherently more limited.
Definition of Scarcity: The imbalance between the rate of expansion of the system's provisioning power and the needs and desires expressed within the system is known as scarcity.
- Human wants are potentially unlimited, whereas resources are not.
Law of Relative Scarcity: This imbalance between wants and the means to satisfy them is also referred to as the law of relative scarcity.
Consequence of Scarcity: The Need for Choice: If individuals cannot possess everything they desire in unlimited quantities, a mechanism for rationing and signaling areas of greatest relative need or desire becomes essential.
Consequence of Choice: Sacrifice and Cost: The very act of making a choice within the existing productive limits of an economic system necessitates sacrifice and incurs a cost.
- Individuals must give up a part of what they might otherwise like to have.
Illustration: These principles can be visually represented using the production possibility curve.

Economics is broadly divided into two main areas of inquiry:

Focus: Microeconomics is the study of individual elements within the economy.
Key Elements: These individual elements include households and firms.
Aggregation: These individual elements aggregate to form markets for specific commodities or services.
Primary Study Area: The focus of microeconomic inquiry is the market and the interactions between different markets.
Highest Level of Aggregation: On the production side, the highest level of aggregation considered in microeconomics is the industry.
- An industry is defined by the production and exchange of a single commodity or a set of closely related commodities.
- Within an industry, the presence or absence of power over price can vary.

Focus: Macroeconomics is the study of the broad nature of an economy, emphasizing the total production of all commodities.
Scope Exclusion: The detailed workings of individual parts of the economic system are not part of macroeconomic inquiry.
Study Aims: The primary aims of macroeconomic study are:
- To identify and understand the causes behind movements in total production.
- To determine how these fluctuations in total production relate to total employment.
- To analyze the movement in the overall price index.