Economics is studied from two different perspectives, the macro view and the micro view. Macroeconomics is the study of the determination of economic aggregates such as national output, the level of employment, the price level and the rate of economic growth. Microeconomics studies resource allocation and income distribution as they are affected by the free working of the price system and specific government policies. How, for example, do firms and households make spending choices? What determines an individual's wages? How does the availability of public housing affect supply in the housing market?

Scarcity of resources forces everyone to make choices. For example, faced with a fast approaching mid-term exam, a student could either study or go to a party. In this case, the cost of having a good time can be measured in terms of lost marks on the mid-term. Such a cost is called an opportunity cost.

Opportunity cost, the measurement of the cost of something in terms of forgone alternatives, is fundamental to the study of economics. This concept can be illustrated by a production possibilities frontier, a graphical representation of the combinations of goods and services that are just attainable when all of society's resources are efficiently employed.

Let's look at a simple example: A country can produce 50 helicopters if it produces no food, or 10 million tonnes of food if it produces no helicopters. The country can also produce any combination of food and helicopters on or below the straight line connecting these points. Plotted on a graph with the number of helicopters on one axis and millions of tonnes of food on the other, this line shows the maximum amount of food that can be produced for any given level of helicopter production (or vice versa).

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