CliffsAP Economics Micro & Macro
Chapter One
The Basics
When thinking of economics, you should be aware of one simple synonym-choices. Economics is a social science
involving the study of choices and what necessitates those choices. Macroeconomics is the branch of economics
that examines the behavior of the whole economy at once. Microeconomics is the branch of economics that
examines the choices and interactions of individuals producing and consuming one product, in one firm or industry.
When making a choice, you automatically have created a cost and a benefit. The cost is what has been
relinquished, and the benefit is what has been gained. The term opportunity cost refers to the next
best alternative. For example, if you have $500 and you go to the mall and see a stereo, a jacket, and a television
each costing $500, which would you choose? If you rank the stereo as your first choice, the jacket as your second, and
the TV as your third choice, which would be the opportunity cost? The jacket is the opportunity cost because it is your
next best alternative. Note that the jacket and T.V. together are not the opportunity cost because there can
only be one opportunity cost.
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