Economic Ways of Thinking

Economic theory can be applied at both the personal level as well as at a regional or national level. However, the perspective is different according to your involvement. Contrast these two perspectives:

From a Microeconomic Perspective:

• A choice is a tradeoff (opportunity cost)
• Choices are made at the margin (additional benefit from an additional cost instead of total benefits from total cost)
• Exchange is voluntary (& markets are an efficient way of exchange)
• Markets can and do fail.

From a Macroeconomic Perspective:

• For the economy as a whole, Expenditure = Income = Value of Production
• Productivity improves standards of living
• Inflation occurs when quantity of money increases faster than production
• Unemployment can result from market failure but some unemployment is productive.

Market Forces of Supply and Demand
The forces of supply and demand help us not only to appreciate the significance of the customer (demand) but also from a farmers’ perspective, how unwise competition can be destructive. In this section, we define and discuss demand and supply and the role that price plays as a signal and communication for action.