Economics, 3rd Edition

HOW THE ECONOMY AS A WHOLE WORKS

We started by discussing how individuals make decisions and then looked at how people interact with one 

another. All these decisions and interactions together make up ‘the economy’. The last three of our ten 

principles concern the workings of the economy as a whole.

---

CHAPTER 1  TEN PRINCIPLES OF ECONOMICS  9

Microeconomics and Macroeconomics

Economics is studied on various levels. The first seven principles involve the study of the decisions of 

individual households and firms and the interaction of households and firms in markets for specific goods 

and services. In the last three principles we are looking at the operation of the economy as a whole, which 

is just the sum of the activities of all these decision makers in all these markets.

Since roughly the 1930s, the field of economics has traditionally been divided into two broad  subfields.