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# Unit 2: How Does the Economy Function? ## 2.1 - What is Economics? Economics is a social science that studies the behavior and choices of humans regarding alternative goods, in a context of resource scarcity. Economics, as a science, is generally divided into two main branches: * **Microeconom...

# Unit 2: How Does the Economy Function? ## 2.1 - What is Economics? Economics is a social science that studies the behavior and choices of humans regarding alternative goods, in a context of resource scarcity. Economics, as a science, is generally divided into two main branches: * **Microeconomics:** studies the behavior of individual economic agents. * **Macroeconomics:** studies the interactions of all individual economic agents as a whole. Economists are social scientists who study economics using the scientific method to formulate and test hypotheses, develop theories, and create partial and general economic models to explain the economic behavior of individuals and societies. Economics is also the way humans meet their needs. Therefore, when we talk about economics, we refer to how humans create and use goods and services. What are goods and services? * **Goods** are tangible objects that people need to meet their needs. Examples: a mobile phone or a house. * **Services** are activities that meet people's needs but do not produce goods. Examples: education (meets the need to learn to get a job), commerce (allows us to obtain goods produced elsewhere), leisure activities(help us relax). Therefore, economics is always present in our lives, as we daily need to meet basic needs like eating or communicating. Without goods and services, it would be impossible to survive. The goods and services that a country generates over a year are known as the Gross Domestic Product (GDP). It is used to determine the wealth generated by a country. However, GDP figures may be misleading because a densely populated country's GDP is not comparable to a sparsely populated one. Therefore, to accurately assess a country's wealth, per capita GDP (the country's wealth divided by its population) should be used. Based on their GDP, countries can be categorized as: * **Producer Countries:** They tend to be poorer countries where multinational corporations establish factories, taking advantage of abundant, cheap, and readily available labor. * **Consumer Countries:** These are typically richer countries that consume the goods produced in producer countries. Multinational corporations are usually headquartered in these countries.