A Study of Human Behaviour
Scarcity is the key word in Microeconomics, as scarcity affects how firms and individuals make constrained optimsation. Models, such as Consumers and Producers Models, help to study firms and individuals behave.
Economics aim to answer these three fundamental questions.
- What goods and services to produce?
- How to produce?
- Who gets the goods and services?
Price is the underlying mechanism that answers all these questions. The twin forces that drives economy is Supply and Demand.
Aspects of Economics
There are different approaches in studying the human behaviour of decision making. These approaches may or may not be exclusive.
- Theoretical Economics – building of economic models that explains behaviour.
- Empirical Economics – testing of economic models using data and experiments.
- Positive Economics – seeks to explain how things are.
- Normative Economics – seeks to advocate how things should be.
There is also the sensitive issue of Efficiency versus Equity. Decisions may be most optimised in terms of resource allocation, but may not be fair or just in the eyes of our society.
Appreciating the concepts
Individuals and firms may not consider economic principles when making decisions, but they behave as-if economic models are driving their decisions.
(Reference: MIT OCW Principles of Microeconomics)