two main branches of economic analysis | Small business

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Through Updated 08 August 2018

Economics may seem like an obscure subject, since you haven’t had the chance to study it much, but parts of it can be very understandable. A simple definition of economics is the study of how people use resources, especially limited resources.

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Economic analysis is generally divided into two main branches, microeconomics and macroeconomics. Microeconomics studies the functioning of individuals and businesses in specific situations, while macroeconomics studies the functioning of the entire economy of a nation, if not the world.

A simple definition of economics

Different experts may come up with different exact definitions of economics, but most of the time if you ask for a simple definition of economics, you will get something about how people use resources given certain incentives. For example, economists could study when people tend to save or spend money, how house prices react to changes in zoning laws, or how the economy is affected by new spending mechanisms like credit cards or bitcoin.

Often economics can overlap with other social sciences such as sociology, political science and psychology, and some of the mathematical and research tools, such as statistical analysis and surveys, may be the same of a discipline. to the other.

Understanding microeconomics

Microeconomics is the branch of economics that deals with how individuals, including people and businesses, respond to economic conditions. For example, the question of what price points people will switch from buying beef to chicken is a microeconomic question, as is whether certain interest rates will cause hiring of individual companies to increase.

Some microeconomies focus on production, that is, the transition of resources from one form to another such as in a factory or office. Labor economics is also generally a microeconomics, comprising what motivates workers and their employers and causes hiring, layoffs and wage changes.

Because microeconomics focuses on topics dear to the hearts of many business owners, it is often seen as more immediately useful and less abstract than macroeconomics, which examines the economy as a whole.

What is involved in macroeconomics

Macroeconomics, on the other hand, considers the economy as a whole. It involves trying to understand what shifts the business cycle from boom to bust, or from growth to recession, and what controls aggregate economic indicators such as gross domestic product, unemployment, and economic growth. inflation.

For these reasons, macroeconomics is less amenable to experimentation than microeconomics, and science has, in some ways, been slower to develop.

Macroeconomics can therefore be useful to history students trying to understand why some countries prospered in different eras, and to politicians and central bankers in places like the Federal Reserve looking to steer the economy forward.


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