Economic theory is a framework that helps us understand how economies function. It examines how individuals, businesses, and governments make choices about allocating resources, such as money and time. By analyzing these decisions, economists can predict how changes in policies or market conditions might affect overall economic activity. There are various branches of economic theory, including microeconomics, which focuses on individual and business behavior, and macroeconomics, which looks at the economy as a whole. Key concepts include supply and demand, market equilibrium, and opportunity cost, all of which help explain how different factors influence economic outcomes.