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Economics: The Formation of the Branched Tree

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Economics is a social science that studies how individuals make choices to allocate rare resources for the satisfaction of what appears to be unlimited desires and how individuals interact with one another. It is about everyday life, about what choices everyone makes, and how those choices affect others. Often, economics is broken-down into two branches: microeconomics and macroeconomics.

Microeconomics and Macroeconomics

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A venn diagram that shows the difference between micro- and macroeconomics.
Microeconomics focuses on individual or entity behavior in a particular market aspect. Macroeconomics focuses on the performance of the entire (national) economy.

Microeconomics looks at the smaller picture and focuses more on the individual interactions made in particular markets. To be more precise, microeconomics is a branch of economics that analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of sellers and buyers. It is concerned with the interaction between individual suppliers and demanders and the factors that influence the choices made by buyers and sellers. In particular, microeconomics focuses on patterns of supply and demand and the determination of price and output in individual markets (e.g. coffee industry). People who have any desire to start their own business or who want to learn the rationale behind the pricing of particular products and services would be more interested in this area. Macroeconomics, on the other hand, looks at the big picture (hence "macro-"). It focuses on the national economy as a whole and provides a basic knowledge of how things work in the business world. For example, people who study this branch of economics would be able to interpret the latest Gross Domestic Product figures or explain why a 6% rate of unemployment is not necessarily a bad thing. Thus, for an overall perspective of how the entire economy works, you need to have an understanding of economics at both the micro- and macro- levels. To put it simply, macroeconomics focuses on the aggregate national performance of a particular country.

There are two main concepts that we need to understand that not only form the basis of this branch but all of economics: opportunity cost and scarcity. With these two concepts, we can understand almost all human and economic behavior.