Economics is the study of how individuals and societies choose to use scarce resources. There are three key reasons to study economics: opportunity cost, marginalism, and efficient markets. Opportunity cost refers to the best alternative forgone when making a choice. Marginalism considers only additional costs and benefits of decisions. Efficient markets eliminate profit opportunities instantly through competition. Microeconomics examines individual decision makers while macroeconomics looks at aggregates on a national scale. Positive economics describes economic behavior without judgment, using theories, models, and data. Normative economics evaluates outcomes and may recommend policy.
Opportunity cost does not have to be measured in dollar terms. The value of an alternative activity is usually measured in both monetary and nonmonetary costs. Opportunity cost is referred to as implicit cost. Accountants count only explicit costs. Economic cost is higher than accounting costs because it includes implicit, or opportunity, cost.