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The Big Definitions in Economics

Part of the Economics For Dummies Cheat Sheet (UK Edition)

When studying any subject, a key first step is to learn the lingo. Here are definitions for three of the most important words in economics:

  • Economics studies how people allocate resources among alternative uses. The reason people have to make choices is scarcity, the fact that we don’t have enough resources to satisfy all our wants.

  • Microeconomics studies the maximizing behaviour of individual people and individual firms. Economists assume that people work toward maximizing their utility, or happiness, while firms act to maximize profits.

  • Macroeconomics studies national economies, concentrating on economic growth and how to prevent and ameliorate recessions.

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