1. Economics - the study of resource allocation, the study of incentives, the study of business activities. Economics studies how society allocates the limited resources of the earth to the never satisfied appetites of humans.
2. Supply and Demand are the forces at work. From the supply and demand curves, we will understand how the price and quantity related in the marketplace. Equilibrium is the point at which the quantity supplied equals the quantity demanded and a mutually agreeable price is determined.
3. When you are thinking about the specific market conditions of an industry, a company, or the buying behavior of individuals, microeconomic theory governs. Industries produce the quantity that meets demand at an equilibrium price based on the competitive market structure. Companies produce the quantity at which the marginal revenue of the last unit produced equals the marginal cost. Individuals purchase based on their elasticity of demand.
4. Keynesian and Monetarist Theory
Keynesianism emphasises the role that fiscal policy can play in stabilizing the economy. It suggests that higher government spending in a recession can help the economy recover quicker.
Monetarism emphasises the importance of controlling the money supply to control inflation. Monetarists are generally critical of expansionary fiscal policy arguing that it will cause just inflation or crowding out and therefore not help.
The current recession looks increasing severe. As people talk more of depression economics rather than just a cyclical downturn, there is increased interest in Keynesian economics and whether this offers a solution.
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