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Nature of economic reasoning

Definition of economic

It is saying economic is the art but in the modern society it is named social science. Considering of economic they will think about how cost and resources are efficient for human being’s unlimited wants.

There are micro economic and macro-economic

Micro economic concerns the behavior of individuals and firm decision making. E.g. Individuals, firms and household manage money how to spend efficiently than organization and internal level.

Micro economic issues

Choices – All society have unlimited wants and if you want to choose something, you are going to face opportunity cost, because resources are limited in production (labor, land, machine etc.)

Concept of opportunity cost – It is referred alternative cost of resource. For example, you spend the time at bar after finishing job, you cannot be having dinner with your family at home and you have no time to watch TV something else.

Rational economic decision making

Individual always make logical decision which support people satisfaction and their highest self-interest.

It is considered marginal cost and marginal benefits.

Marginal cost

When production made one additional unit, the total cost of production is incurred for one more unit of good and service.

Marginal benefit

Marginal benefit is additional benefit caused by consumption of one additional unit of good and service.

In addition what is the different between marginal cost and marginal benefit.

When business are planning to produce goods or services to customer , They focus on how much it is charged for incremental costs and they expect how much they get benefits.

Microeconomic objective

There are efficiency and equity.


It is important for a business to have efficiency and effectiveness.

Every business maintain standard, goal and profitability. E.g. Business expect lowest prices in production or services but good to be in possible good quality.


Equity means which everyone comes from different field. Therefore they have different background, idea, culture and ethic but they should have same opportunity and fairness where they are working place.

Macro-Economic Issues

Macroeconomics mentions to the ’big picture’ study of economics, so looking at concepts like industry, country, or global economic factors. Macroeconomics contains studying concepts such as a country’s Gross Domestic Product (GDP), unemployment rates, growth rate, cyclical fluctuations and how all these concepts has relationship with each other.

Relationship with growth and inflation

Economic growth is explained by Endogenous Growth Theory that is related to the matters of production for example; economies of scale, encouraging technological changing and increasing in population. In endogenous growth theory, the growth rate has rely on one variable: for example. When it face inflation, it will affect decreasing on the rate of return that will reduce aggregation of capital and decline the growth rate.

The author’s state which a relationship occurs between inflation and growth, it is not likely to be a simple one. The bivariate relationship may not be linear; and the correlation between inflation/disinflation and growth may be quite different from the steady-state inflation-growth relationship. Ghosh and Phillips argue further, that in a multivariate case, the relationship becomes even more complicated. The inclusion of other determinants of growth reduces the apparent effect of growth, for a number of reasons. These include amongst others, the idea that some of the other determinants may be functions of inflation themselves. In this paper, they attempt to address these various methodological problems in an attempt to examine the relationship between inflation, disinflation and output growth.

Unemployment in macroeconomic mention

There are five activity of circular flow of income.

  1. Individual
  2. Business
  3. Financial institution
  4. Government
  5. International trade

Individuals operate business there will appear income and expenditure on good and services. When they earn profitable amount they have saving money and money go to financial institution and they can invest more in business and they also have to pay taxes from their profit to the government. It is going to occur money circulation and money from government flows to the business as expenditure. If individual owe import and export business, it will happen as international flow.


This sector is combined firms and household in economy. They are also productive resources and the consumers are necessary included.

Individuals deliver the source of operation such as skill labors and technologies to the businesses, that they can produce goods and services. On the other hand these resources can cause individual income, interest and profitable thing in the businesses .When firms and households are starting the business, production of good, selling and distribution product will be considering according to economic (except financial services).

Their process is involved purchasing raw materials for production and consuming material to be finished well and it can be sold in the market.

Individuals and businesses are reliant each other. One more important consideration is financial institutions. We cannot run properly even small business if we don’t have enough financial situation. So borrowing and lending of money are consisted of those institutions. For individuals and firms financial institutions are the most essential to be saved and invested.

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