3. Read and retell the text: what is economics?

Many of the world’s most pressing problems are economic in nature. So knowledge of basic economics is essential to anyone who wants to understand the world in which we live.

The subject matter of economics is society itself. But economics is concerned with studying those aspects of human society which are to do with the production and consumption of goods and services; wages and earnings; unemployment; inflation; government spending; taxation and regulation; international trade, and the distribution of material wealth in the country and throughout the world.

All economic questions arise from the fundamental fact of scarcity. Nature does not provide all of the things society wants. We must decide what, how and for whom to produce. To reduce scarcity human beings can apply their labour to manipulate nature, e.g. cultivating crops. If human beings succeed in their efforts, they become better off in terms of material wealth. This steady improvement is called economic growth.

The ability of producers to provide goods and services to individuals at various prices is broadly covered by the concept of supply. The desire by individuals to consume goods and services at various prices is broadly covered by the concept of demand. For each commodity produced in the economy the interaction between supply and demand leads to the determination of the price and the quantity of output that is produced or sold. Virtually, all areas of study in economics can be classified into those under the heading of supply, those under the heading of demand and those based on interrelationships between supply and demand.

There are two sides to the study of economics – microeconomics and macroeconomics. Microeconomics is concerned with individual products and decisions made by individual firms and consumers. Macroeconomics is concerned with the functioning of the overall economy.

Microeconomics is divided into several categories of decision making. With regard to the actions of consumers, microeconomics is first concerned with the choices individuals make in determining how to spend their income. Second, microeconomics deals with how individuals decide on the quantity of the labour or other resource endowments, such as capital, or land, that they wish to sell to firm in exchange for income.

With regard to the actions taken by firms, microeconomics is first concerned with how inputs should be used in the production of output. Second, based on production costs and the prices at which their goods will sell in the market, firms must decide how much output to produce.

Finally, combining the actions of individuals and firms, microeconomics is concerned with the determination of prices for both the inputs used in the production process and the outputs produced.

Macroeconomics is concerned with the problems of economic growth, unemployment and inflation. Each of these factors is an indication of the overall state of the economy and how fully resources are utilized. Higher economic growth generally implies higher living standards. Lower unemployment suggests that society is making good use of its labour resource. Low rates of inflation reflect stable valuations of goods and services in terms of money.

So, the major distinction between micro- and macroeconomics analysis is in the groups that are the focus of study in each branch. In microeconomics, individuals and firms are the main agents whose actions are analyzed. In macroeconomics, the actions of broad groupings such as all consumers, government, and all investors – form the basis for analysis.

Notes:

1. …the inputs used in the production process and the outputs produced – виробничі затрати, що були використані під час виробничого процесу, і вироблена продукція

2. …low rates of inflation – низькі темпи інфляції