Economics is the social science that analyzes the production, distribution, and consumption of goodsand services.

Economics aims to explain how economies work and how economic agents interact.

Scarcity and Efficiency refers to the Twin themes of Economics; Scarcity occurs where it's impossible to meet all unlimited the desires and needs of the peoples with limited resources i.e; goods and services. Society must need to find a balance between sacrificing one resource and that will result in getting other. Efficiency denotes the most effective use of a society's resources in satisfying peoples wants and needs. It means that the economy's resources are being used as effectively as possible to satisfy people's needs and desires. Thus, the essence of economics is to acknowledge the reality of scarcity and then figure out how to organize society in a way which produces the most efficient use of resources.

Read more: http://wiki.answers.com/Q/What_are_the_twin_themes_of_economics#ixzz3lbPCVGzG

Microeconomics
Markets
Microeconomics, like macroeconomics, is a fundamental method for analyzing the economy as asystem. It treats households and firms interacting through individual markets as irreducible elements of the economy, given scarcity and government regulation. A market might be for aproduct, say fresh corn, or the services of a factor of production, say bricklaying.

Production, cost, and efficiency

In microeconomics, production is the conversion of inputs into outputs. It is an economic process that uses inputs to create a commodity for exchange or direct use. Production is a flow and thus a rate of output per period of time. Distinctions include such production alternatives as forconsumption (food, haircuts, etc.) vs. investment goods (new tractors, buildings, roads, etc.),public goods (national defense, small-pox vaccinations, etc.) or private goods (new computers, bananas, etc.), and "guns" vs. "butter". Economic efficiency describes how well a system generates desired output with a given set of inputs and available technology. Efficiency is improved if more output is generated without changing inputs, or in other words, the amount of "waste" is reduced. A widely-accepted general standard is Pareto efficiency, which is reached when no further change can make someone better off without making someone else worse off.

An example PPF with illustrative points marked

The production-possibility frontier (PPF) is an expository figure for representing scarcity, cost, and efficiency. In the simplest case an economy can produce just two goods (say "guns" and "butter"). The PPF is a table or graph (as at the right) showing the different quantity combinations of the two goods producible with a given technology and total factor inputs, which limit feasible total output. Each point on the curve shows potential total output for the economy, which is the maximum feasible output of one good, given a feasible output quantity of the other good. Scarcity is represented in the figure by people being willing but unable in the aggregate to consume beyond the PPF (such as at X) and by the negative slope of the curve.
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If production of one

good increases along the curve, production of the other good decreases, an inverse relationship. This is because increasing output of one good requires transferring inputs to it from production of the other good, decreasing the latter. The slope of the curve at a point on it gives thetrade-off between the two goods. It measures what an additional unit of one good costs in units forgone of the other good, an example of a real opportunity cost. Thus, if one more Gun costs 100 units of butter, the opportunity cost of one Gun is 100 Butter. Along the PPF, scarcity implies that choosing more of one good in the aggregate entails doing with less of the other good. Still, in a market economy, movement along the curve may indicate that the choice of the increased output is anticipated to be worth the cost to the agents. By construction, each point on the curve shows productive efficiency in maximizing output for given total inputs. A point inside the curve (as at A), is feasible but represents production inefficiency (wasteful use of inputs), in that output of one or both goods could increase by moving in a northeast direction to a point on the curve. Examples cited of such inefficiency include high unemployment during a businesscyclerecession or economic organization of a country that discourages full use of resources. Being on the curve might still not fully satisfyallocative efficiency (also called Pareto efficiency) if it does not produce a mix of goods that consumers prefer over other points.

Much applied economics in public policy is concerned with determining how the efficiency of an economy can be improved. Recognizing the reality of scarcity and then figuring out how to organize society for the most efficient use of resources has been described as the "essence of economics," where the subject "makes its unique contribution."
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Contents
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1 Microeconomics

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1.1 Markets 1.2 Production, cost, and efficiency 1.3 Specialization 1.4 Supply and demand 1.5 Firms 1.6 Uncertainty and game theory 1.7 Market failure 1.8 Public sector

2 Macroeconomics

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2.1 Growth 2.2 Business cycle 2.3 Inflation and monetary policy 2.4 Fiscal policy and regulation

Measuring economic growth

Economic growth is measured as a percentage change in the Gross Domestic Product (GDP) or Gross National Product (GNP). These two measures, which are calculated slightly differently, total the amounts paid for the goods and services that a country produced. As an example of measuring economic growth, a country which creates $9,000,000,000 in goods and services in 2010 and then creates $9,090,000,000 in 2011, has an economic growth rate of 1% for 2011. In order to compare per capita economic growth among countries, the total sales of the countries to be compared may be quoted in a single currency. This requires converting the value of currencies of various countries into a selected currency, for example U.S. dollars. One way to do this conversion is to rely on exchange rates among the currencies, for example how many Mexican pesos buy a single U.S. dollar? Another approach is to use the purchasing power parity method. This method is based on how much consumers must pay for the same "basket of goods" in each country.

Inflation or deflation can make it difficult to measure economic growth. If GDP, for example, goes up in a country by 1% in a year, was this due solely to rising prices (inflation) or because more goods and services were produced and saved? To express real growth rather than changes in prices for the same goods, statistics on economic growth are often adjusted for inflation or deflation. For example, a table may show changes in GDP in the period 1990 to 2000, as expressed in 1990 U.S. dollars. This means that the single currency being used is the U.S. dollar with the purchasing power it had in the U.S. in 1990. The table might mention that the figures are "inflation-adjusted" or real. If no adjustment were made for inflation, the table might make no mention of inflation-adjustment or might mention that the prices are nominal. Defining economic growth Economic growth is best defined as a long-term expansion of the productive potential of the economy. Sustained economic growth should lead higher real living standards and rising employment. Short term growth is measured by the annual % change in real GDP. Growth and the Production Possibility Frontier An increase in long run aggregate supply is illustrated by an outward shift in the PPF.

Advantages of Economic Growth

Sustained economic growth is a major objective of government policy not least because of the benefits that flow from a growing economy. Higher Living Standards for example measured by an increase in real national income per head of population see the evidence shown in the chart below Employment effects: Growth stimulates higher employment. The British economy has been growing since autumn 1992 and we have seen a large fall in unemployment and a rise in the number of people employed. Fiscal Dividend: Growth has a positive effect on government finances - boosting tax revenues and providing the government with extra money to finance spending projects The Investment Accelerator Effect: Rising demand and output encourages investment in new capital machinery this helps to sustain the growth in the economy by increasing long run aggregate supply. Growth and Business Confidence: Economic growth normally has a positive impact on company profits & business confidence good news for the stock market and also for the growth of small and large businesses alike

Rising national income boosts living standards And an expanding economy provides the impetus for a rising level of employment and a falling rate of unemployment. This has certainly been the case for the British economy over the last decade.

Disadvantages of economic growth There are some economic costs of a fast-growing economy. The two main concerns are firstly that growth can lead to a pick up in inflation and secondly, that growth can have damaging effects on our

environment, with potentially long-lasting consequences for future generations. Inflation risk: If the economy grows too quickly there is the danger of inflation as demand races ahead of aggregate supply. Producer then take advantage of this by raising prices for consumers Environmental concerns: Growth cannot be separated from its environmental impact. Fast growth of production and consumption can create negative externalities (for example, increased noise and lower air quality arising from air pollution and road congestion, increased consumption of de-merit goods, the rapid growth of household and industrial waste and the pollution that comes from increased output in the energy sector) These externalities reduce social welfare and can lead to market failure. Growth that leads to environmental damage can have a negative effect on peoples quality of life and may also impede a countrys sustainable rate of growth. Examples include the destruction of rain forests, the over-exploitation of fish stocks and loss of natural habitat created through the construction of new roads, hotels, retail malls and industrial estates.

Many economists and environmentalists are concerned about the impact that rapid economic growth can have on our limited scarce resources and our environment. The trend rate of economic growth Another way of thinking about the trend growth rate is to view it as a safe speed limit for the economy. In other words, an estimate of how fast the economy can reasonably be expected to grow over a number of years without creating an increase in inflationary pressure. Above trend growth positive output gap: If the economy grows too quickly (much faster than the trend) then aggregate demand will eventually exceed long-run aggregate supply and lead to a positive output gap emerging (excess demand in the economy). This can lead to demandpull and cost-push inflation. Below trend growth negative output gap: If the economy experiences a sustained slowdown or recession (i.e. growth is well below the trend rate) then output will fall short of potential GDP leading to a negative output gap. The result is downward pressure on prices and rising unemployment because of a lack of aggregate demand.

Demand and supply factors influence growth of GDP Many factors influence the rate of economic growth. Some factors, such as changes in consumer and business confidence, aggregate demand conditions in the UKs trading partners, and monetary and fiscal policy, tend to have a mainly temporary effect on growth. Other factors, such as the rates of population and productivity growth, have more enduring effects, and help to determine the economys average growth rate over long periods of time. Adapted from a Treasury paper www.hm-treasury.gov.uk The importance of the supply-side of the economy The trend rate of growth is determined mainly by the supply-side capacity of a country i.e. the extent to which LRAS increases year-on-year to meet a higher level of demand for goods and services. Potential output in the long run depends on the following factors The trend growth of the working population i.e. the size of the active labour supply (e.g. those people able available and willing to find paid employment) The growth of the nations stock of capital driven by the level of capital investment in new buildings, machinery, plant and technology The trend rate of growth of factor productivity (including labour productivity) a measure of gains in factor efficiency Technological improvements driven by innovation and invention which reduce the costs of supplying goods and services and which lead to an outward shift in a countrys production possibility frontier

Long Run Aggregate Supply and the Trend Rate of Growth The effects of an increase in long run aggregate supply are traced in the diagram below. An increase in LRAS allows the economy to operate at a higher level of aggregate demand leading to sustained increases in real national output.

Potential output in the long run depends on the following factors (1) The growth of the labour force e.g. those people able available and willing to find employment If the government can increase the number of people willing and able to actively seek paid employment, then the employment rate increases leading to a higher output of goods and services. The Government has invested heavily in a number of employment schemes designed to raise employment including New Deal andreforms to the tax and benefit system. Changes in the age structure of the population also affect the total number of people seeking work. And we might also consider the effects that migration of workers into the UK from overseas, including the newly enlarged European Union, can have on our total labour supply (2) The growth of the nations stock of capital driven by the level of fixed capital investment. A rise in capital investment adds directly to GDP in the sense that capital goods have to be designed, produced, marketed and delivered. Higher investment also provides workers with more capital to work with. New capital also tends to embody technological improvements which providing workers have sufficient skills and training to make full and efficient use of their new capital inputs, should lead to a higher level of productivity after a time lag. (3) The trend rate of growth of productivity of labour and capital. For most countries it is the growth ofproductivity that drives the long-term growth. The root causes of improved efficiency come from making markets more competitive and achieving better productivity within individual plants and factories. Increased investment in the human capital of the workforce is widely seen as essential if the UK is to improve its long run productivity performance for example increased spending on workrelated training and improvement in the UK education system at all levels. (4) Technological improvements are important because they reduce the real costs of supplying goods

and services which leads to an outward shift in a countrys production possibility frontier The current growth phase for the UK is the longest period of continuous growth for over forty years. Author: Geoff Riley, Eton College, September 2006

What Does Foreign Exchange Mean? The exchange of one currency for another, or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock. The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX."

Instruments, such as paper currency, notes, and checks, used to make payments between countries.
Definition for employment rate: The Organization for Economic Co-operation and Development defines the employment rate as the percentage of the working age population (ages 15 to 64 in most OECD countries) who are currently employed. ....
Employment Rate definition :

The percentage of the labor force that is employed. The employment rate is one of the economic indicators that economists examine to help understand the state of the economy. See also: Unemployment rate.
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a [1] period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money a loss of real value in [2][3] the internal medium of exchange and unit of account in the economy. A chief measure of price

inflation is the inflation rate, the annualized percentage change in a general price index (normally [4 the Consumer Price Index) over time.