University of Agricultural Sciences, Bangalore

Jack Welch retired as chief executive officer of general electric during the summer of 2001 after more than 20 relatively turbulent years. GE was extrodinarily successful during his tenure. ITs total market value in 2011 was larger than that of any other company on the planet, and forture magazine voted GE the most respected corporation in America for each of Mr. Welch's last four years. To achieve such accolades for imself and his company, Mr. Welch made countless decisions over the years that depended on an understanding of economics. 'This is ot surprising. Economics helps us understand the nature and organization of our society, the arguments undelying many of the great issues of the day, and the operation of businesses and other economic organizations.

Precisely what is economics one standard definition describes economics as the study of how scare resources are allocated among alternative uses. It is customary to divide economics into two parts. Microeconomics is the study of the economic behavior of individual units and decision-makers: consumers, firms, and the owners of resources, to name a few. Macroeconomics deals with the behavior of economic aggregates like gross domestic product and the level of employment. Since this book is concerned with microeconomics, we begin this chapter with a brief introduction to the tasks that any economic system must confront of it is to cope with resources scarcity. We will, however, turn quickly to an initial discussion about how the price system of a decentralized economy might work.