Understanding and Application of Economics

Understanding and application of economics
Economics is the study of how society manages its scarce resources. Put simply, economics is to discuss how to use the limited resources to produce the products as much as possible. The core idea of economics is scarce resources and efficient use of resources, and can be divided into two main branches, microeconomics and macroeconomics. The microeconomics is focus on the market forces of supply and demand; elasticity; markets and welfare; externalities, public goods and common resources; cost of production; firms in competitive markets; monopolistic competition. However, the macroeconomics study on the real economy in the long run; money and prices in the long run; the macroeconomics of open economy and short-run economic fluctuations. From the point of view of economic origin, Adam Smith described the “invisible hand” metaphor in the 1700s, when everyone is acting in accordance with their own interests, then an invisible hand guide people to promote the public welfare unknowingly. This paper will link the economics knowledge to our daily life from three aspects: opportunity cost, marginal utility and inflation.

Firstly, the term of opportunity cost in economic is used in allocate resources reasonable and implement the greatest benefits. The opportunity cost of an item is what you give up to obtain that item. The item that you should give up has a wide range, such as money, time, goods, labor services and so on. For instance, if you have a shop and there is a few options for you to run a small side business. You can choose sell flowers, sell cosmetics or sell jewelry (only can choose one option). If you choose to sell flowers, the opportunity cost is the benefit come from sell cosmetics or jewelry that you give up. So, we can assume the benefit of sell flowers is $80,000, the benefit of sell cosmetics is $90,000 and the benefit of sell jewelry is $100,000. Then we can know the opportunity cost of sell flowers is...