U N I T 2 ECONOMICS This Unit looks at general concepts in Economics and the main economic theories, as well as at the contemporary issue of sustainable development both in developed and developing countries. A. MICROECONOMICS AND MACROECONOMICS Economics is the study of the allocation of scarce resources. The idea is quite simple: any individual has an almost unlimited list of desires, but most people have a finite amount of money or, more in general, resources with which to satisfy these desires. Economics studies the best way to allocate the resources that are available. Not all desires, or needs, can be satisfied, but economics should be able to help the individual and society to meet as many of them as possible. One way that economics allocates resources is through prices. If they are high, producers know that the goods are in demand and that they can increase production; if they are low, demand is weak and producers should cut back production. At the same time, by studying prices, consumers decide which goods to purchase and which to avoid. Broadly speaking, economics has two components: microeconomics and macroeconomics. Microeconomics studies how individual units, consumers or firms decide to allocate resources and whether those decisions are desirable. Macroeconomics studies the economy as a whole; it looks at the aggregate outcomes in the economy of all the decisions made by consumers, firms and the government. Microeconomics is about how consumers and firms allocate resources, while macroeconomics is about overall levels of production, consumption, employment and prices, and how they move over time and between countries. 184