BASIC ECONOMICS

DEFINITIONS
ECONOMICS:
Economics is a social science that deals with the study
of production, consumption and distribution of goods
and services.

MICROECONOMICS:
Microeconomics is the study of individual units of an
economy.

MACROECONOMICS:
Macroeconomics is the study of economy in
aggregate, or simply, as whole.

SCARCITY:
The limitation of resources is called scarcity.

OPPORTUNITY COST:
The opportunity cost of an item is what you give up to
get that item.
MARKET:
A market is an arrangement which links buyers and
sellers.

POSITIVE STATEMENTS:
Positive statements are objective statements that are
based on facts. They can be testable and proven. For
e.g. Higher interest rates will reduce house prices.

NORMATIVE STATEMENTS:
Normative statements are subjective statements that
are based on opinions. They can’t be tested. For e.g.
Pollution is the most serious economic problem.

CONSTRAINT OPTIMIZATION:
Constraint optimization is finding out the best possible
values of certain variables i.e. optimizing, in presence
of some restrictions i.e. constraints. Like, maximizing
satisfaction in your given pocket money, or, minimum
studying to get decent results.
In economics, the variables and constraints are
economic in nature. The methodology in economics
uses constraint optimization, which means maximum
consumption, constrained to given budget, or,
minimizing expenditure, constrained to given level of
consumption.