Microeconomics vs. Macroeconomics

Microeconomics is a branch of economics that studies how individuals, households, firms, and government agencies make decisions to allocate limited resources. Microeconomics examines how these decisions and behaviors affect the supply and demand for goods and services, which determines prices; and how prices, in turn, determine supply and demand.

Macroeconomics involves the sum total of economic activity, dealing with the issues of growth, inflation, and unemployment and with national economic policies relating to these issues. Micro economists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions.

The distinction between microeconomics and macroeconomics can be described in small-scale vs. large-scale or in terms of partial vs. general equilibrium.

Opportunity Cost

Opportunity cost is one way to measure the cost of something. Rather than identifying and adding the costs of a project, one may also identify the next best alternative way to spend the same amount of money. Giving up the profit of the next best alternative is the opportunity cost of the original choice. Opportunity cost is not the sum of the available alternatives, but rather the benefit, of the single best alternative. Unless otherwise specified, when economists say "cost", they are referring to opportunity cost.

Comparative Advantage

Comparative advantage is defined as the ability of one economic agent (an individual, a household, a firm, or a government agency) to produce a particular good or service at a lower opportunity cost than other economic agents can. For example: in the textiles industry, many countries in Asia have the comparative advantage to manufacture textiles over the U.S.. This does not mean that the U.S. does not have the capabilities to produce textiles, but in the global economy, Asian countries like China have the comparative advantage. On the other side of this coin, American companies may have the comparative advantage to lend money to companies in rapidly growing economies like China's.

Laissez-faire

Laissez-faire is a French term that literally means "Let do". It is the classical doctrine which emphasise that the economic affairs of society are best guided by the free decisions of individuals in the marketplace, and that government interference should be nearly excluded in economic matters. The term laissez-faire is often used interchangeably with the term "free market". It is generally understood to be a doctrine that maintains that private initiative and production should be left to roam free.

Supporters of laissez-faire oppose economic interventionism and taxation by the state beyond that which is perceived to be necessary to maintain individual liberty, peace, security, and property rights. In the laissez-faire paradigm, the state has no responsibility to engage in intervention to maintain a desired wealth distribution or to create a welfare state to protect people from poverty. Laissez-faire embodies the notion that a government should not be in the business of granting privileges. Advocates of laissez-faire economics are critical of mixed economies on the grounds that they lead to special interest-group politics.