The theories of economics attempt to explain decision making in a world of scarcity. They allow us to understand and predict the economic choices that people make and their effects on society. Economic theories have been used to analyze such diverse issues as unemployment, health care systems, education, technological innovation, crime, and fertility. The impact of government actions on the economy as a whole and on the decisions of individual units is also a major area of concern. Thus, economic theories have also been used to analyze the effects of government spending and taxing policies, as well as government policies to redistribute income and to reduce environmental pollution.
Economic analysis is based on models, which are simplifications of the real world.
In this course the models we will be studying are often represented with graphs and simple algebra. Economics is divided into two main branches. Macroeconomics looks at the behavior of the economic aggregates at the determination of and fluctuations in national income, employment, the price level, and economic growth. Microeconomics focuses on the behavior of the units the firms and individuals that make up the economy. It is concerned with how the individual units make decisions and what affects those decisions.