Question

1. Assume you have a very brilliant and inquisitive sibling who wants to take a college course. Recommend economics to him/her by

a. defining economics, including microeconomics;

b. telling him at two key ideas behind the economic way of thinking and the methodology of economics

Answer 1

1.

A

Economics is one of the most important study streams that deals with the problems faced by households, firms and economy as whole and offer best solutions to these problems. Hence, the study of economics as a part of course, is good for the individuals who want to pursue a challenging and rewarding career. The economics is mainly classified into two categories named as microeconomics and macroeconomics. The microeconomics deals with the problems faced at the firm level such as what to produce, how much to produce, pricing decisions and demand forecasting for the firm’s products & services. It creates opportunities for the professionals who are good the economics and can take informed decision. Macroeconomics deals with the economic aggregates such as aggregate demand, aggregate supply, national income concepts, monetary and fiscal policy among the others. A good use of macroeconomics, brings price stability and employment in the economy.

B

Two key ideas of the economic way of thinking are as follows:

1. The first idea is the marginal principle where our decisions are based upon marginal revenue and marginal cost analysis. We always prefer the consumption and or production level where the marginal revenue equals marginal cost. It maximizes the utility level of the individuals or profit level of the firms.

2. The second idea is the principle of opportunity cost. Whenever a resource is deployed, then the best and the second best usages are identified. It helps to assess the best options available and people choose to go with the best alternative so that utility is maximized. For example, by employing time and pursuing a business earns income $100000 per year, but doing a job and earning a salary of $80000 per year. Then, best alternative is to go for the business and earn $100000 income. Here, the opportunity cost of doing a business is to do the job and earn $80000.