DEFINITIONS:

Economy: an area where people and firms produce, trade and consume goods and services. This can vary in size- from your local town to your country, or the globe itself.

Microeconomics and Macroeconomics

Microeconomics is the study of individual markets. For example: studying the effect of a price change on the demand for a good. Microeconomic decision makers are producers and consumers (who directly operate in markets)

Macroeconomics is the study of an entire economy, as a whole. Examples include studying the total size of the economy or the unemployment rate, among other things. Macroeconomic decisions are made by the government of the particular economy – a town, state or country)

Government’s main aim → to achieve price stability, increase employment levels, increase economic growth and have a balance of payments. Further, the study of how different government objectives and the policies implemented are taken into account.

Resource allocation: the way in which economies decide what goods and services to provide, how to produce them and who to produce them for.
3 basic economic question → what to produce, how to produce, and for whom to produce

Market is any set of arrangement that brings together all the producers and consumers of a good or service, so they may engage in exchange. Example: a market for soft drinks.

Price Mechanism