Cambridge International as and a level Economics Ebook

What is Economics?
Th
ere are almost as many defi nitions of Economics 
as there are economists! Although a defi nition of the 
subject is to be expected, it is probably more useful at this 
stage to set out a few examples of the sort of issues that 
concern professional economists. Th
ese topics occur in 
an introductory form in the Cambridge syllabus.
Let us take you fi rst of all. Most people fi nd that they 
want to lead an exciting and full life but unfortunately do 
not always have the money necessary to buy or to do all 
they want. So, choices have to be made, or as an economist 
would say, individuals have to decide how to allocate their 
scarce resources in the most effi
cient way.
A body of economic principles and concepts has been 
developed to explain how people, and also businesses, 
behave in this situation. Th
is is a typical example of what 
an economist would refer to as microeconomics.
It is not only individuals and fi rms who are faced with 
having to make choices. Governments face many such 
problems. For example, how does a country’s government 
decide how much to spend on health or social security 
and how much should go into providing new roads and 
infrastructure for, say, tourism? Th
is is the same type 
of problem facing all of us in our daily lives but on a 
diff erent scale.
Governments also have extensive responsibilities in 
looking aft er the well-being of their national economies. 
Th
e fi nance ministers, for example, prepare an annual 
budget for their economies, in which taxation and 
government expenditure plans are reviewed. It is also an 
opportunity to ‘manage the economy’ by seeking to ensure 
that policy objectives are being met. An economist would 
say that the fi nance ministers have to decide:
■
how to keep the rate of change of prices (inflation) under 
control
■
how to increase total demand in the economy to increase 
the number of jobs that are available.
Th
ese are typical topics that come under the broad 
heading of macroeconomics since they relate to the 
economy as a whole.
As you read through this text you will come across 
many other economic problems and issues of both a micro 
and macro nature. You may now fi nd it useful to complete 
Self-assessment task 1 below.