The Silent Economist

Tag: microeconomics

  • The Economic Problem

    In simplistic terms the Economic Problem is that we always want more than we have the resources for.

    Our wants are unlimited and our resources are limited. In other words there is scarcity of the things that we want either as individuals, businesses or nations.

    As the result of scarcity we have to make choices.

    Scientists suggest that in traditional societies that humans had to make 2,500 decisions per day. Today we make about 35,000 decisions per day.

    I wonder how many you have made already today?

    From an economic perspective, when we make those choices, we are trying to ensure that we are making the best use of the scarce resources available to us.

    As an individual, would a bowl of cereal or a bowl of fruit be a better choice of breakfast.

    For a business, should they buy employ staff or install self serve kiosks.

    For a nation, allow individuals to keep all their income and allow them to choose where to spend it or tax their income and spend it on their behalf.

    In summary.

    The Economic Problem is the problem of scarcity, where unlimited human wants exceed the limited resources available to satisfy them.

  • Is it Micro or Macro Economics?

    Often you will hear reference to Microeconomics or Macroeconomics.

    What is the difference between the two?

    Micro applies to individual parts of the economy whilst macro applies to the economy as a whole.

    If there is a discussion about the wages of nurses, then this is the realm of microeconomics.

    A discussion of the wage level in the economy as a whole is macroeconomics.

    Much of the discussion that you hear in the news is macroeconomics. Its about the state of the economy, how fast prices are rising, the level of unemployment, the balance of payments and how fast or slow the economy is growing.

    Microeconomics will be more specific, the impact of car travel on the economy, whether we are eating too much red meat, the cost of health care etc.

    Simple ways to remember it.

    • Micro = individual parts of the economy (people, firms, markets).
    • Macro = the whole economy (countries, national income, inflation, unemployment).

    Or

    • Microeconomics is looking at a single tree.
    • Macroeconomics is looking at the entire forest.

    EXAM TIP:

    Most exam papers have a paper on Microeconomics, even if its not called that, and one of Macroeconomics.

    So if you are asked about the impact say of subsidies for electric vehicles (EVs) and you start responding, that it will increase the demand for EVs and so create employment opportunities and so the rate of unemployment will fall in the economy, you will not be answering the question.

    Some papers will be a mixture of the two and your job is to give the appropriate micro or macro response.