IndexEconomics as a scienceModeling in economicsEconomic way of thinkingEconomic efficiencyEconomics as a scienceAs a matter of fact, all key economic questions and problems arise because human desires exceed the resources available to satisfy them . Our inability to satisfy all our desires is called scarcity. Faced with scarcity we must make choices. We have to choose the available alternatives. Therefore, economics as a science can be defined as a social science that studies the choices that individuals, businesses, government and the entire society make to cope with scarcity. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Should Not Be Banned"? Download an Original Essay The topic of economics is divided into two main components: Microeconomics Macroeconomics. Microeconomics is the study of the choices that individual economic agents make, l the interaction of these choices and the influence that governments have on these choices. The key word to understand microeconomics is individual. Macroeconomics is the study of the aggregate (total) effects on the national economy and the global economy of choices made by individuals, families, businesses and governments. The key word for understanding macroeconomics is aggregate. The economic choices made by individual economic agents, such as individuals, families, businesses and governments, and the interactions of those choices answer the following three main microeconomic questions: What goods and services should be produced and in what? quantity?How are goods and services produced?For whom are various goods and services produced?Microeconomic theory will help us answer these questions. In answering these questions, economists generally believe that individuals want more than is available, and this is why the problem of scarcity arises. Being social scientists, economists try to discover how the economic world works. In doing so, they distinguish between two types of statements or two types of economic analysis: Positive statements or positive economic analysis Normative statements or normative economic analysis. The positive statement is a proposition that can be resolved by appeal to the facts. It is testable, true or false, and is associated with the “what is” statement without any policy recommendation. An example statement is “Air pollution in large cities is high.” Positive analysis is a value-free approach to inquiry. The normative statement is associated with the proposition “what ought to be”. It is not based on facts and usually refers to some policy recommendations. An example statement is: “We should clean up our environment.” Normative analysis is based on value judgment. In general, the following words are good indicators of a normative statement: should, must, should, and must.Modeling in economicsThe task of economic science is first and foremost to discover and catalog positive statements that are consistent with what we observe in the world and that they allow us to understand how the economic world works. This task can be divided into three phases: Observation and measurement Model building Testing. Observation and measurement of results in economists who track huge amounts of economic data. This data is necessary to build economic models. The economic model is a description of some aspect of the economic world that includes only those features necessary for the purpose in question. In general, the economic model is an abstraction (simplification) of the real world. It is composed of a series of hypotheses and relationships between economic variables from which conclusions and/or forecasts are deduced. Hypotheses are statements or what economists call factsstylized. They are accepted without any proof. Assumptions are an important component of an economic model. They help economists create the environment needed to use mathematical relationships. In general, relationships take the form of equations and/or inequalities involving variables, constants and economic parameters. A set of equations and inequalities defines the structure of a model. Equations in economic models are of 3 types: defining equations, behavioral equations and conditional equations. A defining equation is the identity which is the equality between two alternative expressions that have exactly the same meaning. A behavioral equation specifies how a given variable behaves in response to changes in other variables. A conditional equation indicates a requirement that must be satisfied. The mathematical way of presenting economic models is not the only one. In general, economic models can be presented in various forms, for example: with words = logical or verbal models with tables = statistical models with graphs = graphical models with mathematical expressions = mathematical models. All of these are useful ways to analyze economic information. For example, economists make extensive use of graphs because they are very illustrative and help to better absorb the specifics of the underlying economic processes. Finally, after a model is built, it must be tested because it may conflict with existing data. A model that has repeatedly passed the test of correspondence with real-world data forms the basis of an economic theory. Economic theory is a generalization that summarizes what we understand about the economic choices people make and the economic performance of industries and nations. Theories are therefore usually used to address normative aspects of economic analysis. Thus, economics is a social science that studies the allocation of scarce resources to satisfy unlimited needs. This involves analyzing the production, distribution, trade and consumption of goods and services. Economics is said to be positive when it attempts to explain the consequences of different choices given a set of assumptions or observations, and normative when it prescribes that a certain action should be taken. Economic way of thinking The economic way of thinking assumes that a typical response to an economic problem of scarcity is rational behavior. This way of thinking is somewhat different from that of the natural sciences. Five fundamental ideas sum it up, and these ideas form the basis of all microeconomic models. They are: People make rational choices by comparing costs and benefits Cost is what you have to give up to get something Benefit is what you gain when you get something and is measured by what you are willing to give up to get it Rational choice is done with a margin People respond to incentives. In general, rational choice is a choice that uses available resources in the most effective way to satisfy the desires of an economic agent making the choice. Cost in economics is seen in terms of opportunity cost. Opportunity cost is the cost of something you have to give up to get what you want. The concept arises because of scarcity: if you use a resource in a specific way, you actually give up the opportunity to use the scarce resource in any other way. The formal definition of opportunity cost is the value of the most valuable alternative that was not chosen. The benefit of something is the gain or pleasure it brings. Economists measure benefits by what a person is willing to give up to get them. A margin choice is a choice that is made by comparing all the.