What is economics?

Unlike history, mathematics, English and chemistry, economics is a subject that most students encounter only briefly sometimes not at all, before they begin college. Though economics has some similarities to mathematics because logical reasoning and mathematical tools are used in it extensively. It also has some similarities to history because economics studies people as they interact in social groups.

Like chemistry, economics employs the scientific method, although some of economics has a descriptive rather than an analytical flavour. Finally, like English grammar, economics has a few simple rules and principles, but from these principles economics can derive many conclusions.

Economics is the study of how society chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants. Society makes two kinds of choices: economy-wide, or macro, choices and individual, or micro, choices. The prefixes macro and micro come from the Greek words meaning “large” and “small”, respectively. Reflecting the macro and micro perspectives, economics consists of two main branches: macroeconomics and microeconomics.

Macroeconomics

The old saying “Looking at the forest rather than the trees” fits macroeconomics. Macroeconomics is the branch of economics that studies decision making for the economy as a whole. Macroeconomics examines economy-wide variables, such as inflation, unemployment, growth of the economy, money supply, and national incomes. Macroeconomic decision making considers such “big picture” policies as the effect of balancing the federal budget on unemployment and the effect of changing the money supply on prices.

Microeconomics

Examining individual trees, leaves, and pieces of bark, rather than surveying the forest, illustrates microeconomics. Microeconomics is the branch of economics that studies decision making by a single individual, household, firm, industry, or level of government. Microeconomics applies a microscope to specific parts of an economy, as one would examine cells in the body. The focus is on small economic units, such as economic decisions of particular groups of consumers and businesses.

We have described macroeconomics and microeconomics as two separate branches, but they are related. Because the overall economy is the sum or aggregation of its parts, micro changes affect the macro economy, and macro changes produce micro changes.

Exercise 1. Match the words and their definitions

1. Economics	a. a general continuous increase in prices in a country;
2. Resources	b. refers to the number of people who do not have a job which provides them with money;
3. To allocate	c. the study of how individuals and society choose to allocate scarce resources in order to satisfy unlimited wants;
4. Income	d. factors of production classified as land, labour, and capital;
5. Inflation	e. money that is earned from doing work, or received from investments;
6. Unemployment	f. to give (something) to someone as their share of a total amount, for them to use in a particular way.

Exercise 2. Match the word combinations with the Russian equivalents

1. Similarity	a. денежная масса;
2. A descriptive flavour	b. скопление, масса;
3. Decision making	c. сходство;
4. Money supply	d. домашнее хозяйство;
5. Household	e. описательная особенность;
6. Aggregation	f. принятие решений.

Exercise 3. Finish the sentence adding the information from the text

1. Like chemistry, economics employs … .

2. Economics is the study of how … .

3. Society makes two kinds of choices: … .

4. Macroeconomic decision making considers such “big picture” policies … .

5. Microeconomics is the branch of economics that … .

6. Because the overall economy is the sum or aggregation of its parts, … .

Exercise 4. Fill in the missing words

Encounter macroeconomics branches

allocate consumers microeconomics

1. Unlike history economics is a subject that most students only briefly sometimes not at all, before they begin college.

2. Economics is the study of how society chooses to … its scarce resources to the production of goods and services.

3. … is the branch of economics that studies decision making for the economy as a whole.

4. Examining individual trees, leaves, and pieces of bark, rather than surveying the forest, illustrates microeconomics.

5. The focus of microeconomics is on small economic units, such as economic decisions of particular groups of … and businesses.

6. Macroeconomics and microeconomics are described as two separate, but they are related.

Exercise 5. Answer the following questions

1. What does economics study?

2. What are the common features between English and economics?

3. What are the main branches of economics? What do the prefixes “micro” and “macro” mean?

4. How do you understand the old saying “Looking at the forest rather than the trees”?

5. What economy-wide variables does macroeconomics examine?

6. What does microeconomics focus on?