Objectives in Economics
In mixed economies where both markets and government allocate resources, microeconomic and macroeconomic objectives may help steer policy decisions and evaluate the effectiveness of existing practices. Microeconomic goals in economics look at individual aspects of the economy such as prices, supply and demand as guideposts, whereas macroeconomic goals approach economic impact based on the totality of these factors. Five objectives are critical in economic decision-making.
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Economic Equity
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Equity in economics hinges on the "fair" distribution of income and wealth in a society and is an objective in that it serves as a measure and guideline for economic performance. Effectiveness may be viewed in light of who gains and who loses. Aiming for equity, however, calls into question standards, as what may be considered fair may be subject to debate: one person's idea of fair distribution may be based on equal income and wealth for everyone; another's might conceive of income and wealth that is commensurate with the value of their production as fair; and others may believe what is fair is the wealth and income that one needs. If equity based on equality is the standard, then equality of opportunity should be distinguished from equality of results.
Economic Efficiency
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Another objective in economics is the idea of efficiency, which can be seen in two lights: productive and allocative efficiency. In the first type, efficiency is achieved by producing as much as possible given fixed inputs or using the least inputs to reach a specified level of output. This type of efficiency does not consider the fact that not all goods are desired in a way that would justify their production; therefore, allocative efficiency addresses this by factoring in the costs and benefits of undertaking economic activities. By this principle, if the costs outweigh the benefits, then action should not be taken. Efficiency is a key consideration in both individual and social decision-making.
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Full Employment
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The first two objectives in economics were microeconomic goals, or goals from the vantage point of specific economic driving factors. Equity and efficiency often conflict with one another, as they also do with macroeconomic goals, which takes into account the overall economic landscape. One such goal is full employment. Full employment is technically the full utilization of all of a society's resources, but in practice, what is considered full employment is 85 percent capacity including frictional unemployment due to transferring jobs, where total unemployment ranges between 5 and 6 percent of the workforce. This serves as a guideline for policies that seek to avoid the high costs of having too many people unemployed.
Stability
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Two other macroeconomic goals are stability and growth. Stability in this sense can be in prices, production and employment. A goal with stability in mind would likely seek to keep inflation in check, as this would cause uncertainty and hinder another goal in economics: the long-term expansion of a nation's total productive capacity.
Growth
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Economic growth, as signified by real Gross Domestic Product rather than total GDP (since per capita increases in GDP illustrate higher standard of living more readily than does simply greater production due to population growth) ties in with many other objectives in economics: without growth, it would be difficult to achieve full employment; with absent growth, a society could not channel more of its resources toward equitable and fair distribution. The limitations to growth include the availability of a resource, the efficiency with which it is used, as well as the socioeconomic and political conditions of the producing nation that can aid or deter growth. The actual rate of growth is determined by aggregate demand, which is necessary to spur and warrant the mobilization of existing resources.
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