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Law24
Understand your Legal Issue
Article
Money and Financial
2009
December
Economic Terms and Concepts
Understand your Legal Issue
Article
Money and Financial
2009
December
Economic Terms and ConceptsEconomic Terms and Concepts
Authored by: Liesel Beires
Published: 2009/12/02
© 2009 View Liesel's profile
What are the differences between micro and macro economics?
The study of economics is usually divided into two parts: Micro and macro economics.
Micro economics – In Micro economics the focus is on the individual.
Micro comes from the Greek word “Mikros”, which means small. Micro economics therefore examines the decision making of individual consumers, households, firms and government departments.
Macro economics – is concerned with the economy as a whole.
Macro comes from the Greek word “Makros” which means large. Macro economics therefore focuses on the big picture. Macro economics would therefore analyze things such as economic growth, unemployment, inflation and the like.
Table showing the differences between micro and macro economics
The price of a single product | The consumer price index |
Changes in the price of a product like tomatoes | Inflation, i.e. the increase in the general level of prices in the country |
The production of maize | The total output of all goods and services in the economy |
The decisions of individual firms or businesses | The combined decisions of all firms in SA |
The market for individual goods, like bananas | The market for all goods & services in the economy |
The demand for a product like maize | The total demand for all goods & services in the economy |
An individual’s decision whether or not to work | The total supply of labour in the economy |
A firm’s decision whether or not to expand its production of motor cars | Changes in the total supply of goods and services in the economy |
A firm’s decision to export its product | The total exports of goods and services to other countries |
A firm’s decision to import a product from abroad | The total imports of goods and services from other countries |
What is Ceteris Paribus
One very often hears economists using the term “Ceteris Paribus”. Economics is classed as a social science which studies the behaviour of human beings. However unlike other sciences where they can conduct experiments in a laboratory and can keep certain conditions controlled or constant, economists do not have this luxury. Economists when coming up with theories and models therefore had to create a condition which is known as “Ceteris Paribus”. This is a Latin term which means “all things being equal”. This term has become essential to economists when they are trying to track a certain variable in the economy, without necessarily examining the entire knock on effects that a change in that variable may have. This term has allowed economists to make general predictions, in a world where there are many uncertainties. For example an economist could say that when, the price of apples falls, more apples will be purchased, ceteris paribus or all other things remaining the same.
Central economic questions
The science of economics essentially tries to address three important questions regarding activity in the economy. They are the following:
1.
What goods and services will be produced and in what quantities? (output questions)
2.
How will the goods and services be produced, what scarce resources will be used? (input questions)
3.
For whom will the goods and services be produced? (distribution questions)
The different types of goods in the economy
One often hears of economists talking about “goods”, but what are these goods? Outlined below are six types of goods that are common in economics:
1.
Consumer goods – These are goods that are used or consumed by individuals or households to satisfy wants. E.g. food, wine, clothing, shoes etc.
2.
Capital goods – These are goods that are used in the production of other goods. E.g. machinery, school buildings, roads, dams
3.
Final goods – These are goods that are used or consumed by individuals, household and firms E.g. loaf of bread.
4.
Intermediate goods – These are goods that are purchased to be used as inputs in producing other goods. E.g. flour used by the baker to make the bread.
5.
Private goods – The distinguishing feature about a private good, is that consumption of it by others can be excluded. E.g. food, clothing, furniture.
6.
Public goods – This is a good that is used by the community or society at large and consumption by individuals cannot be excluded e.g. Traffic light or public road. These are the goods that generally have to be provided by governments. This is because the provision of public goods cannot be left to the market since it is impossible to charge a fee for the use of such goods.
