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{{about|the social science|other uses|Economics (disambiguation)|and|Economic Theory (journal)}}{{Outline|Outline of economics}}{{pp-semi-indef}}{{pp-move-indef}}{{short description|Social science that analyzes the production, distribution, and consumption of goods and services}}{{Use British English Oxford spelling|date=August 2016}}{{Economics sidebar}}Economics ({{IPAc-en|ɛ|k|ə|ˈ|n|ɒ|m|ɪ|k|s|,_|iː|k|ə|-}})WEB,weblink Economics, Oxford Living Dictionaries, Oxford University Press, DICTIONARY,weblink Economics, Merriam-Webster, OED, economics, 270555, is the social science that studies the production, distribution, and consumption of goods and services.BOOK
, Krugman
, Paul
, Paul Krugman
, Wells
, Robin
, Economics
, Worth Publishers
, 3rd
, 2012
, 2
, 978-1464128738
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the entire economy (meaning aggregated production, consumption, saving, and investment) and issues affecting it, including unemployment of resources (labour, capital, and land), inflation, economic growth, and the public policies that address these issues (monetary, fiscal, and other policies). See glossary of economics.Other broad distinctions within economics include those between positive economics, describing "what is", and normative economics, advocating "what ought to be"; between economic theory and applied economics; between rational and behavioural economics; and between mainstream economics and heterodox economics.BOOK, Andrew, Caplin, Andrew, Schotter, The Foundations of Positive and Normative Economics: A Handbook, Oxford University Press, 2008, 978-0-19-532831-8,weblink Economic analysis can be applied throughout society, in real estate,JOURNAL, Annamoradnejad, Rahimberdi, Safarrad, Taher, Annamoradnejad, Issa, Habibi, Jafar, 2019, Using Web Mining in the Analysis of Housing Prices: A Case study of Tehran,weblink 2019 5th International Conference on Web Research (ICWR), Tehran, Iran, IEEE, 55–60, 10.1109/ICWR.2019.8765250, 9781728114316, business,BOOK,weblink Applied regression analysis for business and economics, Dielman, Terry E., 1952-, 2001, Duxbury/Thomson Learning, 0534379559, 44118027, finance, health care,JOURNAL, Tarricone, Rosanna, 2006, Cost-of-illness analysis,weblink Health Policy, en, 77, 1, 51–63, 10.1016/j.healthpol.2005.07.016, and government.BOOK,weblink FISCAL TIERS : the economics of multi-level government., KING, DAVID., 2018, ROUTLEDGE, 1138648132, 1020440881, Economic analysis is sometimes also applied to such diverse subjects as crime, education,WEB, The World Bank, 2007,weblink Economics of Education, the family, law, politics, religion,JOURNAL, Laurence R. Iannaccone, Iannaccone, Laurence R., September 1998, Introduction to the Economics of Religion, Journal of Economic Literature, 36, 3, 1465–1495., social institutions, war,BOOK, William D. Nordhaus, Nordhaus, William D., 2002, The Economic Consequences of a War with Iraq, War with Iraq: Costs, Consequences, and Alternatives,weblink 51–85, 978-0-87724-036-5,weblink" title="">weblink 2 February 2007, American Academy of Arts and Sciences, Cambridge, Massachusetts, 21 October 2007, science,BOOK, Arthur M., Jr., Diamond, 2008, The New Palgrave Dictionary of Economics, Steven N., Durlauf, Lawrence E., Blume, second, 10.1057/9780230226203.1491,weblink The New Palgrave Dictionary of Economics, 328–334, 978-0-333-78676-5, Science, economics of, and the environment.REPORT, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, United Nations Environment Programme, 2011,weblink

The term and its various definitions

The discipline was renamed in the late 19th century, primarily due to Alfred Marshall, from "political economy" to "economics" as a shorter term for "economic science". At that time, it became more open to rigorous thinking and made increased use of mathematics, which helped support efforts to have it accepted as a science and as a separate discipline outside of political science and other social sciences.{{efn|The term economics is derived from economic science, and the word economic is perhaps shortened from economical or derived from the French word économique or directly from the Latin word oeconomicus "of domestic economy". This in turn comes from the Ancient Greek (oikonomikos), "practiced in the management of a household or family" and therefore "frugal, thrifty", which in turn comes from (oikonomia) "household management" which in turn comes from (' "house") and (', "custom" or "law").WEB, Harper, Douglas, Douglas Harper, Online Etymology Dictionary â€“ Economy, February 2007,weblink 27 October 2007, }}BOOK, Free, Rhona C., 21st Century Economics: A Reference Handbook,weblink Volume 1, 2010, SAGE Publications, 978-1-4129-6142-4, 8, BOOK, Marshall, Alfred, Alfred Marshall, Marshall, Mary Paley, Mary Paley Marshall, The Economics of Industry,weblink 1888, Macmillan, 2, 1879, BOOK, Jevons, William Stanley, William Stanley Jevons, The Theory of Political Economy,weblink second, 1879, Macmillan and Co, XIV, There are a variety of modern definitions of economics; some reflect evolving views of the subject or different views among economists.ENCYCLOPEDIA, Roger E. Backhouse, Backhouse, Roger E., The New Palgrave Dictionary of Economics, 720–722, Steven, Medema, 2008, second, Steven N., Durlauf, Lawrence E., Blume,weblink 10.1057/9780230226203.0442, 978-0-333-78676-5, Economics, definition of, JOURNAL, Backhouse, Roger E., Steven, Medema, Winter 2009, Retrospectives: On the Definition of Economics, Journal of Economic Perspectives, 23, 1, 221–233, 27648302, 10.1257/jep.23.1.221, Scottish philosopher Adam Smith (1776) defined what was then called political economy as "an inquiry into the nature and causes of the wealth of nations", in particular as:
and Book IV, as quoted in ENCYCLOPEDIA, Peter, Groenwegen, 2008, Political Economy, 476–480, The New Palgrave Dictionary of Economics, second, Steven N., Durlauf, Lawrence E., Blume,weblink 10.1057/9780230226203.1300, 'political economy', 978-0-333-78676-5, }}
Jean-Baptiste Say (1803), distinguishing the subject from its public-policy uses, defines it as the science of production, distribution, and consumption of wealth.BOOK, Say, Jean Baptiste, Jean-Baptiste Say, A Treatise on Political Economy, 1803, Grigg and Elliot, harv, Say's Political Economy, On the satirical side, Thomas Carlyle (1849) coined "the dismal science" as an epithet for classical economics, in this context, commonly linked to the pessimistic analysis of Malthus (1798).• MAGAZINE, Carlyle, Thomas, Thomas Carlyle, 1849, Occasional Discourse on the Negro Question, Fraser's Magazine,    • BOOK, Malthus, Thomas Robert, Thomas Robert Malthus, 1798, An Essay on the Principle of Population, J. Johnson, London, An Essay on the Principle of Population,    • JOURNAL, Persky, Joseph, Autumn 1990, Retrospectives: A Dismal Romantic, Journal of Economic Perspectives, 4, 4, 165–172, 1942728, 10.1257/jep.4.4.165, John Stuart Mill (1844) defines the subject in a social context as:}}Alfred Marshall provides a still widely cited definition in his textbook Principles of Economics (1890) that extends analysis beyond wealth and from the societal to the microeconomic level:}}Lionel Robbins (1932) developed implications of what has been termed "[p]erhaps the most commonly accepted current definition of the subject":}}Robbins describes the definition as not classificatory in "pick[ing] out certain kinds of behaviour" but rather analytical in "focus[ing] attention on a particular aspect of behaviour, the form imposed by the influence of scarcity."{{sfnp|Robbins|2007|p=16}} He affirmed that previous economists have usually centred their studies on the analysis of wealth: how wealth is created (production), distributed, and consumed; and how wealth can grow.{{sfnp|Robbins|2007|pp=4–7}} But he said that economics can be used to study other things, such as war, that are outside its usual focus. This is because war has as the goal winning it (as a sought after end), generates both cost and benefits; and, resources (human life and other costs) are used to attain the goal. If the war is not winnable or if the expected costs outweigh the benefits, the deciding actors (assuming they are rational) may never go to war (a decision) but rather explore other alternatives. We cannot define economics as the science that studies wealth, war, crime, education, and any other field economic analysis can be applied to; but, as the science that studies a particular common aspect of each of those subjects (they all use scarce resources to attain a sought after end).Some subsequent comments criticized the definition as overly broad in failing to limit its subject matter to analysis of markets. From the 1960s, however, such comments abated as the economic theory of maximizing behaviour and rational-choice modelling expanded the domain of the subject to areas previously treated in other fields.• JOURNAL, Backhouse, Roger E., Steven G., Medema, October 2009, Defining Economics: The Long Road to Acceptance of the Robbins Definition, Economica, 76, s1, 805–820, 10.1111/j.1468-0335.2009.00789.x,    • JOURNAL, George J. Stigler, Stigler, George J., 1984, Economics—The Imperial Science?, Scandinavian Journal of Economics, 86, 3, 301–313, 3439864, There are other criticisms as well, such as in scarcity not accounting for the macroeconomics of high unemployment.ENCYCLOPEDIA, Mark Blaug, Blaug, Mark, 15 September 2017, Economics, Encyclopædia Britannica,weblink harv, Gary Becker, a contributor to the expansion of economics into new areas, describes the approach he favours as "combin[ing the] assumptions of maximizing behaviour, stable preferences, and market equilibrium, used relentlessly and unflinchingly."BOOK, Becker, Gary S., The Economic Approach to Human Behavior,weblink 1976, University of Chicago Press, 978-0-226-04112-4, 5, One commentary characterizes the remark as making economics an approach rather than a subject matter but with great specificity as to the "choice process and the type of social interaction that [such] analysis involves." The same source reviews a range of definitions included in principles of economics textbooks and concludes that the lack of agreement need not affect the subject-matter that the texts treat. Among economists more generally, it argues that a particular definition presented may reflect the direction toward which the author believes economics is evolving, or should evolve.


Economic writings date from earlier Mesopotamian, Greek, Roman, Indian subcontinent, Chinese, Persian, and Arab civilizations. Economic precepts occur throughout the writings of the Boeotian poet Hesiod and several economic historians have described Hesiod himself as the "first economist".• BOOK, Rothbard, Murray N., Murray N. Rothbard, Economic Thought Before Adam Smith: Austrian Perspective on the History of Economic Thought, I, Edward Elgar Publishing, 1995, 8, 978-0-945466-48-2,weblink    • BOOK, Gordan, Barry J., Economic analysis before Adam Smith: Hesiod to Lessius, MacMillan, 1975, 3, 978-1-349-02116-1, 10.1007/978-1-349-02116-1,weblink    • BOOK, Brockway, George P., The End of Economic Man: An Introduction to Humanistic Economics, fourth, 2001, 128, 978-0-393-05039-4,weblink Other notable writers from Antiquity through to the Renaissance include Aristotle, Xenophon, Chanakya (also known as Kautilya), Qin Shi Huang, Thomas Aquinas, and Ibn Khaldun. Joseph Schumpeter described Aquinas as "coming nearer than any other group to being the "founders' of scientific economics" as to monetary, interest, and value theory within a natural-law perspective.BOOK, Schumpeter, Joseph A., 1954, History of Economic Analysis, Routledge, 97–115, 978-0-415-10888-1,weblink {{failed verification|see talk|date=November 2011}}File:Lorrain.seaport.jpg|thumb|upright=1.15|A 1638 painting of a French seaport during the heyday of alt=A seaport with a ship arrivingTwo groups, later called "mercantilists" and "physiocrats", more directly influenced the subsequent development of the subject. Both groups were associated with the rise of economic nationalism and modern capitalism in Europe. Mercantilism was an economic doctrine that flourished from the 16th to 18th century in a prolific pamphlet literature, whether of merchants or statesmen. It held that a nation's wealth depended on its accumulation of gold and silver. Nations without access to mines could obtain gold and silver from trade only by selling goods abroad and restricting imports other than of gold and silver. The doctrine called for importing cheap raw materials to be used in manufacturing goods, which could be exported, and for state regulation to impose protective tariffs on foreign manufactured goods and prohibit manufacturing in the colonies.• ENCYCLOPEDIA, Mercantilism, Encyclopædia Britannica, 26 August 2016,weblink    • {{harvp|Blaug|2017|page=343}}Physiocrats, a group of 18th-century French thinkers and writers, developed the idea of the economy as a circular flow of income and output. Physiocrats believed that only agricultural production generated a clear surplus over cost, so that agriculture was the basis of all wealth. Thus, they opposed the mercantilist policy of promoting manufacturing and trade at the expense of agriculture, including import tariffs. Physiocrats advocated replacing administratively costly tax collections with a single tax on income of land owners. In reaction against copious mercantilist trade regulations, the physiocrats advocated a policy of laissez-faire, which called for minimal government intervention in the economy.• ENCYCLOPEDIA, Physiocrat, Encyclopædia Britannica, 7 March 2014,weblink    • BOOK, Blaug, Mark, Economic Theory in Retrospect,weblink fifth, 1997, Cambridge University Press, 978-0-521-57701-4, 24–29, 82–84, Adam Smith (1723–1790) was an early economic theorist.BOOK, Hunt, E. K., History of Economic Thought: A Critical Perspective,weblink 2002, M.E. Sharpe, 978-0-7656-0606-8, 36, Smith was harshly critical of the mercantilists but described the physiocratic system "with all its imperfections" as "perhaps the purest approximation to the truth that has yet been published" on the subject.BOOK, Skousen, Mark, The Making of Modern Economics: The Lives and Ideas of the Great Thinkers,weblink 2001, M.E. Sharpe, 978-0-7656-0479-8, 36,

Classical political economy

File:AdamSmith.jpg|thumb|upright|The publication of Adam Smith's alt=Picture of Adam Smith facing to the rightThe publication of Adam Smith's The Wealth of Nations in 1776, has been described as "the effective birth of economics as a separate discipline."{{sfnp|Blaug|2017|p=343}} The book identified land, labour, and capital as the three factors of production and the major contributors to a nation's wealth, as distinct from the physiocratic idea that only agriculture was productive.Smith discusses potential benefits of specialization by division of labour, including increased labour productivity and gains from trade, whether between town and country or across countries.WEB, Alan Deardorff, Deardorff, Alan V., 2016, Division of labor, Deardorffs' Glossary of International Economics, University of Michigan,weblink His "theorem" that "the division of labor is limited by the extent of the market" has been described as the "core of a theory of the functions of firm and industry" and a "fundamental principle of economic organization."JOURNAL, George J. Stigler, Stigler, George J., June 1951, The Division of Labor Is Limited by the Extent of the Market, Journal of Political Economy, 59, 3, 185–193, 1826433,weblink 10.1086/257075, To Smith has also been ascribed "the most important substantive proposition in all of economics" and foundation of resource-allocation theory – that, under competition, resource owners (of labour, land, and capital) seek their most profitable uses, resulting in an equal rate of return for all uses in equilibrium (adjusted for apparent differences arising from such factors as training and unemployment).JOURNAL, Stigler, George J., December 1976, The Successes and Failures of Professor Smith, Journal of Political Economy, 84, 6, 1199–1213, 1831274, 10.1086/260508, Also published as REPORT, The Successes and Failures of Professor Smith, Selected Papers, No. 50,weblink Graduate School of Business, University of Chicago, In an argument that includes "one of the most famous passages in all economics,"{{sfnp|Samuelson|Nordhaus|2004|p=30|loc=ch. 2, "Markets and Government in a Modern Economy", The Invisible Hand}} Smith represents every individual as trying to employ any capital they might command for their own advantage, not that of the society,{{efn|"Capital" in Smith's usage includes fixed capital and circulating capital. The latter includes wages and labour maintenance, money, and inputs from land, mines, and fisheries associated with production.BOOK, Smith, Adam, The Wealth of Nations, 1776, W. Strahan and T. Cadell Publishers, Bk. II: ch. 1, 2, and 5, harv, The Wealth of Nations, }} and for the sake of profit, which is necessary at some level for employing capital in domestic industry, and positively related to the value of produce.{{sfnp|Smith|1776|loc=Bk. IV: Of Systems of political Œconomy, ch. II, "Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home", IV.2.3 para. 3–5 and 8–9}} In this:
The Rev. Thomas Robert Malthus (1798) used the concept of diminishing returns to explain low living standards. Human population, he argued, tended to increase geometrically, outstripping the production of food, which increased arithmetically. The force of a rapidly growing population against a limited amount of land meant diminishing returns to labour. The result, he claimed, was chronically low wages, which prevented the standard of living for most of the population from rising above the subsistence level.BOOK, Malthus, Thomas, 1798, An Essay on the Principle of Population, J. Johson Publisher, An Essay on the Principle of Population, Economist Julian Lincoln Simon has criticized Malthus's conclusions.BOOK, Simon, Julian Lincoln, The Ultimate Resource, 1981, Princeton University Press, The Ultimate Resource, ; and BOOK, Simon, Julian Lincoln, The Ultimate Resource 2,weblink 1996, Princeton University Press, 978-0-691-00381-8, While Adam Smith emphasized the production of income, David Ricardo (1817) focused on the distribution of income among landowners, workers, and capitalists. Ricardo saw an inherent conflict between landowners on the one hand and labour and capital on the other. He posited that the growth of population and capital, pressing against a fixed supply of land, pushes up rents and holds down wages and profits. Ricardo was the first to state and prove the principle of comparative advantage, according to which each country should specialize in producing and exporting goods in that it has a lower relative cost of production, rather relying only on its own production.BOOK, David, Ricardo, 1817, On the Principles of Political Economy and Taxation, John Murray, On the Principles of Political Economy and Taxation, It has been termed a "fundamental analytical explanation" for gains from trade.ENCYCLOPEDIA, Ronald Findlay, Ronald, Findlay, 2008, second, Steven N., Durlauf, Lawrence E., Blume,weblink 10.1057/9780230226203.0274, The New Palgrave Dictionary of Economics, 28–33, 978-0-333-78676-5, Comparative advantage, Coming at the end of the classical tradition, John Stuart Mill (1848) parted company with the earlier classical economists on the inevitability of the distribution of income produced by the market system. Mill pointed to a distinct difference between the market's two roles: allocation of resources and distribution of income. The market might be efficient in allocating resources but not in distributing income, he wrote, making it necessary for society to intervene.BOOK, Mill, John Stuart, 1848, Principles of Political Economy, John W. Parker Publisher, Principles of Political Economy, Value theory was important in classical theory. Smith wrote that the "real price of every thing ... is the toil and trouble of acquiring it". Smith maintained that, with rent and profit, other costs besides wages also enter the price of a commodity.{{sfnp|Smith|1776|loc=Bk. 1, Ch. 5, 6}} Other classical economists presented variations on Smith, termed the 'labour theory of value'. Classical economics focused on the tendency of any market economy to settle in a final stationary state made up of a constant stock of physical wealth (capital) and a constant population size.


File:Karl Marx 001.jpg|upright|right|thumb|The Marxist school of economic thought comes from the work of German economist alt=Photograph of Karl Marx facing the viewerMarxist (later, Marxian) economics descends from classical economics and it derives from the work of Karl Marx. The first volume of Marx's major work, Das Kapital, was published in German in 1867. In it, Marx focused on the labour theory of value and the theory of surplus value which, he believed, explained the exploitation of labour by capital.• ENCYCLOPEDIA, John Roemer, Roemer, J.E., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, 383,weblink 10.1057/9780230226203.3052, The New Palgrave Dictionary of Economics, 9780333786765, Marxian value analysis,    • ENCYCLOPEDIA, Ernest Mandel, Mandel, Ernest, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, 372, 376,weblink 10.1057/9780230226203.3051, The New Palgrave Dictionary of Economics, 9780333786765, Marx, Karl Heinrich (1818–1883), The labour theory of value held that the value of an exchanged commodity was determined by the labour that went into its production and the theory of surplus value demonstrated how the workers only got paid a proportion of the value their work had created.NEWS,weblink The New York Times, Thomas, Fuller, Communism and Capitalism Are Mixing in Laos, 17 September 2009,

Neoclassical economics

At the dawn as a social science, economics was defined and discussed at length as the study of production, distribution, and consumption of wealth by Jean-Baptiste Say in his Treatise on Political Economy or, The Production, Distribution, and Consumption of Wealth (1803). These three items are considered by the science only in relation to the increase or diminution of wealth, and not in reference to their processes of execution.{{efn|"This science indicates the cases in which commerce is truly productive, where whatever is gained by one is lost by another, and where it is profitable to all; it also teaches us to appreciate its several processes, but simply in their results, at which it stops. Besides this knowledge, the merchant must also understand the processes of his art. He must be acquainted with the commodities in which he deals, their qualities and defects, the countries from which they are derived, their markets, the means of their transportation, the values to be given for them in exchange, and the method of keeping accounts. The same remark is applicable to the agriculturist, to the manufacturer, and to the practical man of business; to acquire a thorough knowledge of the causes and consequences of each phenomenon, the study of political economy is essentially necessary to them all; and to become expert in his particular pursuit, each one must add thereto a knowledge of its processes." {{harv|Say|1803|page=XVI}} }} Say's definition has prevailed up to our time, saved by substituting the word "wealth" for "goods and services" meaning that wealth may include non-material objects as well. One hundred and thirty years later, Lionel Robbins noticed that this definition no longer sufficed,{{efn|"And when we submit the definition in question to this test, it is seen to possess deficiencies which, so far from being marginal and subsidiary, amount to nothing less than a complete failure to exhibit either the scope or the significance of the most central generalisations of all."{{harv|Robbins|2007|p=5}} }} because many economists were making theoretical and philosophical inroads in other areas of human activity. In his Essay on the Nature and Significance of Economic Science, he proposed a definition of economics as a study of a particular aspect of human behaviour, the one that falls under the influence of scarcity,{{efn|"The conception we have adopted may be described as analytical. It does not attempt to pick out certain kinds of behaviour, but focuses attention on a particular aspect of behaviour, the form imposed by the influence of scarcity. {{harv|Robbins|2007|p=17}} }} which forces people to choose, allocate scarce resources to competing ends, and economize (seeking the greatest welfare while avoiding the wasting of scarce resources). For Robbins, the insufficiency was solved, and his definition allows us to proclaim, with an easy conscience, education economics, safety and security economics, health economics, war economics, and of course, production, distribution and consumption economics as valid subjects of the economic science." Citing Robbins: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses".{{sfnp|Robbins|2007|p=16}} After discussing it for decades, Robbins' definition became widely accepted by mainstream economists, and it has opened way into current textbooks.CONFERENCE, Defining Economics: the Long Road to Acceptance of the Robbins Definition, Roger E., Backhouse, Steven G., Medema, Lionel Robbins's essay on the Nature and Significance of Economic Science, 75th anniversary conference proceedings, 10 December 2007, 209–230,weblink harv, also published in JOURNAL, Defining Economics: The Long Road to Acceptance of the Robbins Definition, Economica, October 2009, 76, Supplement 1, 805–820, 40268907, 10.1111/j.1468-0335.2009.00789.x, Backhouse, Roger E, Medema, Steve G, Although far from unanimous, most mainstream economists would accept some version of Robbins' definition, even though many have raised serious objections to the scope and method of economics, emanating from that definition.{{sfnp|Backhouse|Medema|2007|page=223|ps=: "There remained division over whether economics was defined by a method or a subject matter but both sides in that debate could increasingly accept some version of the Robbins definition."}} Due to the lack of strong consensus, and that production, distribution and consumption of goods and services is the prime area of study of economics, the old definition still stands in many quarters.A body of theory later termed "neoclassical economics" or "marginalism" formed from about 1870 to 1910. The term "economics" was popularized by such neoclassical economists as Alfred Marshall as a concise synonym for "economic science" and a substitute for the earlier "political economy". This corresponded to the influence on the subject of mathematical methods used in the natural sciences.BOOK, Clark, Barry, Political Economy: A Comparative Approach,weblink second, 1998, Praeger, 978-0-275-95869-5, Neoclassical economics systematized supply and demand as joint determinants of price and quantity in market equilibrium, affecting both the allocation of output and the distribution of income. It dispensed with the labour theory of value inherited from classical economics in favour of a marginal utility theory of value on the demand side and a more general theory of costs on the supply side.ENCYCLOPEDIA, Campos, Antonietta, 1987, The New Palgrave: A Dictionary of Economics, III, 320, first, John, Eatwell, Murray, Milgate, Peter, Newman,weblink 10.1057/9780230226203.3031, The New Palgrave Dictionary of Economics, 9780333786765, Marginalist economics, In the 20th century, neoclassical theorists moved away from an earlier notion suggesting that total utility for a society could be measured in favour of ordinal utility, which hypothesizes merely behaviour-based relations across persons.ENCYCLOPEDIA, R.D. Collison, Black, 2008, Steven N., Durlauf, Lawrence E., Blume, second,weblink 10.1057/9780230226203.1781, The New Palgrave Dictionary of Economics, 577–581, 978-0-333-78676-5, Utility, In microeconomics, neoclassical economics represents incentives and costs as playing a pervasive role in shaping decision making. An immediate example of this is the consumer theory of individual demand, which isolates how prices (as costs) and income affect quantity demanded. In macroeconomics it is reflected in an early and lasting neoclassical synthesis with Keynesian macroeconomics.JOURNAL, John Hicks, Hicks, J.R., April 1937, Mr. Keynes and the "Classics": A Suggested Interpretation, Econometrica, 5, 2, 1907242, 147–159, 10.2307/1907242, Neoclassical economics is occasionally referred as orthodox economics whether by its critics or sympathizers. Modern mainstream economics builds on neoclassical economics but with many refinements that either supplement or generalize earlier analysis, such as econometrics, game theory, analysis of market failure and imperfect competition, and the neoclassical model of economic growth for analysing long-run variables affecting national income.Neoclassical economics studies the behaviour of individuals, households, and organizations (called economic actors, players, or agents), when they manage or use scarce resources, which have alternative uses, to achieve desired ends. Agents are assumed to act rationally, have multiple desirable ends in sight, limited resources to obtain these ends, a set of stable preferences, a definite overall guiding objective, and the capability of making a choice. There exists an economic problem, subject to study by economic science, when a decision (choice) is made by one or more resource-controlling players to attain the best possible outcome under bounded rational conditions. In other words, resource-controlling agents maximize value subject to the constraints imposed by the information the agents have, their cognitive limitations, and the finite amount of time they have to make and execute a decision. Economic science centres on the activities of the economic agents that comprise society.JOURNAL, Leigh, Tesfatsion, Agent-Based Computational Economics: Growing Economies from the Bottom Up, Artificial Life (journal), Artificial Life, Winter 2002, 8, 1, 55–82,weblink 12020421, 10.1162/106454602753694765,, They are the focus of economic analysis.{{efn|See Agent-based computational economics}}An approach to understanding these processes, through the study of agent behaviour under scarcity, may go as follows:The continuous interplay (exchange or trade) done by economic actors in all markets sets the prices for all goods and services which, in turn, make the rational managing of scarce resources possible. At the same time, the decisions (choices) made by the same actors, while they are pursuing their own interest, determine the level of output (production), consumption, savings, and investment, in an economy, as well as the remuneration (distribution) paid to the owners of labour (in the form of wages), capital (in the form of profits) and land (in the form of rent).{{efn|Interest payments are considered a form of rent on credit money.}} Each period, as if they were in a giant feedback system, economic players influence the pricing processes and the economy, and are in turn influenced by them until a steady state (equilibrium) of all variables involved is reached or until an external shock throws the system toward a new equilibrium point. Because of the autonomous actions of rational interacting agents, the economy is a complex adaptive system.{{efn|See Complex adaptive system and Dynamic network analysis}}

Keynesian economics

File:WhiteandKeynes.jpg|right|thumb|upright|alt=John Maynard Keynes greeting Harry Dexter White, then a senior official in the U.S. Treasury Department|John Maynard KeynesJohn Maynard KeynesKeynesian economics derives from John Maynard Keynes, in particular his book The General Theory of Employment, Interest and Money (1936), which ushered in contemporary macroeconomics as a distinct field.• BOOK, Keynes, John Maynard, The General Theory of Employment, Interest and Money, Macmillan, 1936, London, 978-1-57392-139-8, The General Theory of Employment, Interest and Money,    • {{harvp|Blaug|2017|p=347}} The book focused on determinants of national income in the short run when prices are relatively inflexible. Keynes attempted to explain in broad theoretical detail why high labour-market unemployment might not be self-correcting due to low "effective demand" and why even price flexibility and monetary policy might be unavailing. The term "revolutionary" has been applied to the book in its impact on economic analysis.• ENCYCLOPEDIA, Tarshis, L., Lorie Tarshis, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, III, 47–50,weblink 10.1057/9780230226203.2888, The New Palgrave Dictionary of Economics, 9780333786765, Keynesian Revolution,    • {{harvp|Samuelson|Nordhaus|2004|p=5}}   • {{harvp|Blaug|2017|p=346}}Keynesian economics has two successors. Post-Keynesian economics also concentrates on macroeconomic rigidities and adjustment processes. Research on micro foundations for their models is represented as based on real-life practices rather than simple optimizing models. It is generally associated with the University of Cambridge and the work of Joan Robinson.ENCYCLOPEDIA, Harcourt, G.C., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, III, 47–50,weblink 10.1057/9780230226203.3307, The New Palgrave Dictionary of Economics, 9780333786765, Post-Keynesian economics, New-Keynesian economics is also associated with developments in the Keynesian fashion. Within this group researchers tend to share with other economists the emphasis on models employing micro foundations and optimizing behaviour but with a narrower focus on standard Keynesian themes such as price and wage rigidity. These are usually made to be endogenous features of the models, rather than simply assumed as in older Keynesian-style ones.

Chicago school of economics

The Chicago School of economics is best known for its free market advocacy and monetarist ideas. According to Milton Friedman and monetarists, market economies are inherently stable if the money supply does not greatly expand or contract. Ben Bernanke, former Chairman of the Federal Reserve, is among the economists today generally accepting Friedman's analysis of the causes of the Great Depression.WEB,weblink Remarks by Governor Ben S. Bernanke, The Federal Reserve Board, 8 November 2002, Ben, Bernanke, Milton Friedman effectively took many of the basic principles set forth by Adam Smith and the classical economists and modernized them. One example of this is his article in the 13 September 1970 issue of The New York Times Magazine, in which he claims that the social responsibility of business should be "to use its resources and engage in activities designed to increase its profits ... (through) open and free competition without deception or fraud."NEWS, Friedman, Milton, The Social Responsibility of Business is to Increase its Profits, The New York Times Magazine, 13 September 1970,weblink

Other schools and approaches

Other well-known schools or trends of thought referring to a particular style of economics practised at and disseminated from well-defined groups of academicians that have become known worldwide, include the Austrian School, the Freiburg School, the School of Lausanne, post-Keynesian economics and the Stockholm school. Contemporary mainstream economics is sometimes separated into the Saltwater approach of those universities along the Eastern and Western coasts of the US, and the Freshwater, or Chicago-school approach.Within macroeconomics there is, in general order of their appearance in the literature; classical economics, Keynesian economics, the neoclassical synthesis, post-Keynesian economics, monetarism, new classical economics, and supply-side economics. Alternative developments include ecological economics, constitutional economics, institutional economics, evolutionary economics, dependency theory, structuralist economics, world systems theory, econophysics, feminist economics and biophysical economics.NEW, Nathanial, Greenwolde, 23 October 2009, New School of Thought Brings Energy to 'the Dismal Science', The New York Times,weblink

Economic systems

Economic systems is the (JEL classification codes#Economic systems JEL: P Subcategories|branch) of economics that studies the methods and institutions by which societies determine the ownership, direction, and allocation of economic resources. An economic system of a society is the unit of analysis.Among contemporary systems at different ends of the organizational spectrum are socialist systems and capitalist systems, in which most production occurs in respectively state-run and private enterprises. In between are mixed economies. A common element is the interaction of economic and political influences, broadly described as political economy. Comparative economic systems studies the relative performance and behaviour of different economies or systems.ENCYCLOPEDIA, Robert L. Heilbroner, Heilbroner, Robert L., Peter J., Boettke, 2007, Economic Systems, Encyclopædia Britannica,weblinkweblink" title="">weblink 26 April 2008, live, subscription, The U.S. Export-Import Bank defines a Marxist–Leninist state as having a centrally planned economy. They are now rare; examples can still be seen in Cuba, North Korea and Laos.BOOK, Van Brabant, Jozef M., The Planned Economies and International Economic Organizations, Cambridge University Press, 1991, 16, 978-0-521-38350-9,weblink {{update inline|date=August 2013}}


Mainstream economic theory relies upon (wikt:a priori|a priori) quantitative economic models, which employ a variety of concepts. Theory typically proceeds with an assumption of ceteris paribus, which means holding constant explanatory variables other than the one under consideration. When creating theories, the objective is to find ones which are at least as simple in information requirements, more precise in predictions, and more fruitful in generating additional research than prior theories.BOOK, Friedman, Milton, 1953, Essays in Positive Economics#The Methodology of Positive Economics, The Methodology of Positive Economics, Essays in Positive Economics, University of Chicago Press, 10, harv, While neoclassical economic theory constitutes both the dominant or orthodox theoretical as well as methodological framework, economic theory can also take the form of other schools of thought such as in heterodox economic theories.In microeconomics, principal concepts include supply and demand, marginalism, rational choice theory, opportunity cost, budget constraints, utility, and the theory of the firm.• ENCYCLOPEDIA, Boland, Lawrence A., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, III, 455–458,weblink 10.1057/9780230226203.3083, The New Palgrave Dictionary of Economics, 9780333786765, Methodology,    • JOURNAL, Consensus and Dissension among Economists: An Empirical Inquiry, Frey, Bruno S., Pommerehne, Werner W., Schneider, Friedrich, Gilbert, Guy, The American Economic Review, 0002-8282, 74, 5, December 1984, 986–994, 557, harv, Early macroeconomic models focused on modelling the relationships between aggregate variables, but as the relationships appeared to change over time macroeconomists, including new Keynesians, reformulated their models in microfoundations.The aforementioned microeconomic concepts play a major part in macroeconomic models â€“ for instance, in monetary theory, the quantity theory of money predicts that increases in the growth rate of the money supply increase inflation, and inflation is assumed to be influenced by rational expectations. In development economics, slower growth in developed nations has been sometimes predicted because of the declining marginal returns of investment and capital, and this has been observed in the Four Asian Tigers. Sometimes an economic hypothesis is only qualitative, not quantitative.ENCYCLOPEDIA, Quirk, James, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, IV, 1–3,weblink 10.1057/9780230226203.3369, The New Palgrave Dictionary of Economics, 9780333786765, Qualitative economics, Expositions of economic reasoning often use two-dimensional graphs to illustrate theoretical relationships. At a higher level of generality, Paul Samuelson's treatise Foundations of Economic Analysis (1947) used mathematical methods beyond graphs to represent the theory, particularly as to maximizing behavioural relations of agents reaching equilibrium. The book focused on examining the class of statements called operationally meaningful theorems in economics, which are theorems that can conceivably be refuted by empirical data.BOOK, Foundations of Economic Analysis, Enlarged Edition, Samuelson, Paul A., Paul Samuelson, 1947, 1983, 4, Harvard University Press, Boston, 978-0-674-31301-9, Foundations of Economic Analysis,



File:Ballard Farmers' Market - vegetables.jpg|thumb|upright=1.15|Economists study trade, production and consumption decisions, such as those that occur in a traditional alt=A vegetable vendor in a marketplace.File:Sao Paulo Stock Exchange.jpg|thumb|upright=1.15|Electronic trading brings together buyers and sellers through an electronic trading platform and network to create virtual market places. Pictured: alt=Two traders sit at computer monitors with financial information.Microeconomics examines how entities, forming a market structure, interact within a market to create a market system. These entities include private and public players with various classifications, typically operating under scarcity of tradable units and light government regulation.{{clarify|date=July 2017}} The item traded may be a tangible product such as apples or a service such as repair services, legal counsel, or entertainment.In theory, in a free market the aggregates (sum of) of quantity demanded by buyers and quantity supplied by sellers may reach economic equilibrium over time in reaction to price changes; in practice, various issues may prevent equilibrium, and any equilibrium reached may not necessarily be morally equitable. For example, if the supply of healthcare services is limited by external factors, the equilibrium price may be unaffordable for many who desire it but cannot pay for it.Various market structures exist. In perfectly competitive markets, no participants are large enough to have the market power to set the price of a homogeneous product. In other words, every participant is a "price taker" as no participant influences the price of a product. In the real world, markets often experience imperfect competition.Forms include monopoly (in which there is only one seller of a good), duopoly (in which there are only two sellers of a good), oligopoly (in which there are few sellers of a good), monopolistic competition (in which there are many sellers producing highly differentiated goods), monopsony (in which there is only one buyer of a good), and oligopsony (in which there are few buyers of a good). Unlike perfect competition, imperfect competition invariably means market power is unequally distributed. Firms under imperfect competition have the potential to be "price makers", which means that, by holding a disproportionately high share of market power, they can influence the prices of their products.Microeconomics studies individual markets by simplifying the economic system by assuming that activity in the market being analysed does not affect other markets. This method of analysis is known as partial-equilibrium analysis (supply and demand). This method aggregates (the sum of all activity) in only one market. General-equilibrium theory studies various markets and their behaviour. It aggregates (the sum of all activity) across all markets. This method studies both changes in markets and their interactions leading towards equilibrium.• {{harvp|Blaug|2017|pp=347–349}}   • ENCYCLOPEDIA, Hal R. Varian, Varian, Hal R., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman,weblink 10.1057/9780230226203.3086, The New Palgrave Dictionary of Economics, 1, 9780333786765, Microeconomics,

Production, cost, and efficiency

In microeconomics, production is the conversion of inputs into outputs. It is an economic process that uses inputs to create a commodity or a service for exchange or direct use. Production is a flow and thus a rate of output per period of time. Distinctions include such production alternatives as for consumption (food, haircuts, etc.) vs. investment goods (new tractors, buildings, roads, etc.), public goods (national defence, smallpox vaccinations, etc.) or private goods (new computers, bananas, etc.), and "guns" vs "butter".Opportunity cost is the economic cost of production: the value of the next best opportunity foregone. Choices must be made between desirable yet mutually exclusive actions. It has been described as expressing "the basic relationship between scarcity and choice".ENCYCLOPEDIA, James M. Buchanan, Buchanan, James M., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman,weblink 10.1057/9780230226203.3206, The New Palgrave Dictionary of Economics, 1, 9780333786765, Opportunity cost, For example, if a baker uses a sack of flour to make pretzels one morning, then the baker cannot use either the flour or the morning to make bagels instead. Part of the cost of making pretzels is that neither the flour nor the morning are available any longer, for use in some other way. The opportunity cost of an activity is an element in ensuring that scarce resources are used efficiently, such that the cost is weighed against the value of that activity in deciding on more or less of it. Opportunity costs are not restricted to monetary or financial costs but could be measured by the real cost of output forgone, leisure, or anything else that provides the alternative benefit (utility).WEB, The Economist Economics A-Z,weblink Opportunity Cost, 3 August 2010, Inputs used in the production process include such primary factors of production as labour services, capital (durable produced goods used in production, such as an existing factory), and land (including natural resources). Other inputs may include intermediate goods used in production of final goods, such as the steel in a new car.Economic efficiency measures how well a system generates desired output with a given set of inputs and available technology. Efficiency is improved if more output is generated without changing inputs, or in other words, the amount of "waste" is reduced. A widely accepted general standard is Pareto efficiency, which is reached when no further change can make someone better off without making someone else worse off.File:Production Possibilities Frontier Curve.svg|thumb|upright=1.6|An example production–possibility frontierproduction–possibility frontierThe production–possibility frontier (PPF) is an expository figure for representing scarcity, cost, and efficiency. In the simplest case an economy can produce just two goods (say "guns" and "butter"). The PPF is a table or graph (as at the right) showing the different quantity combinations of the two goods producible with a given technology and total factor inputs, which limit feasible total output. Each point on the curve shows potential total output for the economy, which is the maximum feasible output of one good, given a feasible output quantity of the other good.Scarcity is represented in the figure by people being willing but unable in the aggregate to consume beyond the PPF (such as at X) and by the negative slope of the curve.ENCYCLOPEDIA, Montani, Guido, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman,weblink 10.1057/9780230226203.3485, The New Palgrave Dictionary of Economics, 1, 9780333786765, Scarcity, If production of one good increases along the curve, production of the other good decreases, an inverse relationship. This is because increasing output of one good requires transferring inputs to it from production of the other good, decreasing the latter.The slope of the curve at a point on it gives the trade-off between the two goods. It measures what an additional unit of one good costs in units forgone of the other good, an example of a real opportunity cost. Thus, if one more Gun costs 100 units of butter, the opportunity cost of one Gun is 100 Butter. Along the PPF, scarcity implies that choosing more of one good in the aggregate entails doing with less of the other good. Still, in a market economy, movement along the curve may indicate that the choice of the increased output is anticipated to be worth the cost to the agents.By construction, each point on the curve shows productive efficiency in maximizing output for given total inputs. A point inside the curve (as at A), is feasible but represents production inefficiency (wasteful use of inputs), in that output of one or both goods could increase by moving in a northeast direction to a point on the curve. Examples cited of such inefficiency include high unemployment during a business-cycle recession or economic organization of a country that discourages full use of resources. Being on the curve might still not fully satisfy allocative efficiency (also called Pareto efficiency) if it does not produce a mix of goods that consumers prefer over other points.Much applied economics in public policy is concerned with determining how the efficiency of an economy can be improved. Recognizing the reality of scarcity and then figuring out how to organize society for the most efficient use of resources has been described as the "essence of economics", where the subject "makes its unique contribution."{{sfnp|Samuelson|Nordhaus|2004|loc= ch. 1, p. 5 (quotation) and sect. C,"The Production-Possibility Frontier", pp. 9–15; ch. 2, "Efficiency" sect.; ch. 8, sect. D, "The Concept of Efficiency}}


File:Late Medieval Trade Routes.jpg|thumb|upright=2.05|A map showing the main trade routes for goods within late medieval Europe.]]Specialization is considered key to economic efficiency based on theoretical and empirical considerations. Different individuals or nations may have different real opportunity costs of production, say from differences in stocks of human capital per worker or capital/labour ratios. According to theory, this may give a comparative advantage in production of goods that make more intensive use of the relatively more abundant, thus relatively cheaper, input.Even if one region has an absolute advantage as to the ratio of its outputs to inputs in every type of output, it may still specialize in the output in which it has a comparative advantage and thereby gain from trading with a region that lacks any absolute advantage but has a comparative advantage in producing something else.It has been observed that a high volume of trade occurs among regions even with access to a similar technology and mix of factor inputs, including high-income countries. This has led to investigation of economies of scale and agglomeration to explain specialization in similar but differentiated product lines, to the overall benefit of respective trading parties or regions.• JOURNAL, Paul Krugman, Krugman, Paul, December 1980, Scale Economies, Product Differentiation, and the Pattern of Trade, American Economic Review, 70, 5, 950–999,weblink 1805774,    • ENCYCLOPEDIA, William C., Strange, 2008, Steven N., Durlauf, Lawrence E., Blume, second,weblink 10.1057/9780230226203.1769, The New Palgrave Dictionary of Economics, 533–536, 978-0-333-78676-5, Urban agglomeration, The general theory of specialization applies to trade among individuals, farms, manufacturers, service providers, and economies. Among each of these production systems, there may be a corresponding division of labour with different work groups specializing, or correspondingly different types of capital equipment and differentiated land uses.• ENCYCLOPEDIA, Groenewegen, Peter, 2008, Steven N., Durlauf, Lawrence E., Blume, second,weblink 10.1057/9780230226203.0401, The New Palgrave Dictionary of Economics, 517–526, 978-0-333-78676-5, Division of labour,    • WEB, Johnson, Paul M., 2005,weblink Specialization, A Glossary of Political Economy Terms, Department of Political Science, Auburn University,    • BOOK, Yang, Xiaokai, Ng, Yew-Kwang, Specialization and Economic Organization: A New Classical Microeconomic Framework,weblink 1993, North-Holland, 978-0-444-88698-9, An example that combines features above is a country that specializes in the production of high-tech knowledge products, as developed countries do, and trades with developing nations for goods produced in factories where labour is relatively cheap and plentiful, resulting in different in opportunity costs of production. More total output and utility thereby results from specializing in production and trading than if each country produced its own high-tech and low-tech products.Theory and observation set out the conditions such that market prices of outputs and productive inputs select an allocation of factor inputs by comparative advantage, so that (relatively) low-cost inputs go to producing low-cost outputs. In the process, aggregate output may increase as a by-product or by design.BOOK, Cameron, Rondo E., Rondo Cameron, A Concise Economic History of the World: From Paleolithic Times to the Present,weblink second, 1993, Oxford University Press, 978-0-19-507445-1, 25–25, 32, 276–280, Such specialization of production creates opportunities for gains from trade whereby resource owners benefit from trade in the sale of one type of output for other, more highly valued goods. A measure of gains from trade is the increased income levels that trade may facilitate.• {{harvp|Samuelson|Nordhaus|2004|pages=37, 433, 435}}   • ENCYCLOPEDIA, Findlay, Ronald, 2008, Steven N., Durlauf, Lawrence E., Blume, second,weblink 10.1057/9780230226203.0274, The New Palgrave Dictionary of Economics, 28–33, 978-0-333-78676-5, Comparative advantage,    • ENCYCLOPEDIA, Kemp, Murray C., 1987, The New Palgrave: A Dictionary of Economics, John, Eatwell, Murray, Milgate, Peter, Newman, first,weblink 10.1057/9780230226203.2613, The New Palgrave Dictionary of Economics, 1, 9780333786765, Gains from trade,

Supply and demand

File:Supply-demand-right-shift-demand.svg|thumb|upright=1.6|The alt=A graph depicting Quantity on the X-axis and Price on the Y-axisPrices and quantities have been described as the most directly observable attributes of goods produced and exchanged in a market economy.ENCYCLOPEDIA, Brody, A., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman,weblink 10.1057/9780230226203.3325, The New Palgrave Dictionary of Economics, 1, 9780333786765, Prices and quantities, The theory of supply and demand is an organizing principle for explaining how prices coordinate the amounts produced and consumed. In microeconomics, it applies to price and output determination for a market with perfect competition, which includes the condition of no buyers or sellers large enough to have price-setting power.For a given market of a commodity, demand is the relation of the quantity that all buyers would be prepared to purchase at each unit price of the good. Demand is often represented by a table or a graph showing price and quantity demanded (as in the figure). Demand theory describes individual consumers as rationally choosing the most preferred quantity of each good, given income, prices, tastes, etc. A term for this is "constrained utility maximization" (with income and wealth as the constraints on demand). Here, utility refers to the hypothesized relation of each individual consumer for ranking different commodity bundles as more or less preferred.The law of demand states that, in general, price and quantity demanded in a given market are inversely related. That is, the higher the price of a product, the less of it people would be prepared to buy (other things unchanged). As the price of a commodity falls, consumers move toward it from relatively more expensive goods (the substitution effect). In addition, purchasing power from the price decline increases ability to buy (the income effect). Other factors can change demand; for example an increase in income will shift the demand curve for a normal good outward relative to the origin, as in the figure. All determinants are predominantly taken as constant factors of demand and supply.Supply is the relation between the price of a good and the quantity available for sale at that price. It may be represented as a table or graph relating price and quantity supplied. Producers, for example business firms, are hypothesized to be profit maximizers, meaning that they attempt to produce and supply the amount of goods that will bring them the highest profit. Supply is typically represented as a function relating price and quantity, if other factors are unchanged.That is, the higher the price at which the good can be sold, the more of it producers will supply, as in the figure. The higher price makes it profitable to increase production. Just as on the demand side, the position of the supply can shift, say from a change in the price of a productive input or a technical improvement. The "Law of Supply" states that, in general, a rise in price leads to an expansion in supply and a fall in price leads to a contraction in supply. Here as well, the determinants of supply, such as price of substitutes, cost of production, technology applied and various factors inputs of production are all taken to be constant for a specific time period of evaluation of supply.Market equilibrium occurs where quantity supplied equals quantity demanded, the intersection of the supply and demand curves in the figure above. At a price below equilibrium, there is a shortage of quantity supplied compared to quantity demanded. This is posited to bid the price up. At a price above equilibrium, there is a surplus of quantity supplied compared to quantity demanded. This pushes the price down. The model of supply and demand predicts that for given supply and demand curves, price and quantity will stabilize at the price that makes quantity supplied equal to quantity demanded. Similarly, demand-and-supply theory predicts a new price-quantity combination from a shift in demand (as to the figure), or in supply.For a given quantity of a consumer good, the point on the demand curve indicates the value, or marginal utility, to consumers for that unit. It measures what the consumer would be prepared to pay for that unit.ENCYCLOPEDIA, William Baumol, Baumol, William J., 28 April 2016, Utility and Value, Encyclopædia Britannica,weblink The corresponding point on the supply curve measures marginal cost, the increase in total cost to the supplier for the corresponding unit of the good. The price in equilibrium is determined by supply and demand. In a perfectly competitive market, supply and demand equate marginal cost and marginal utility at equilibrium.BOOK, Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory, Hicks, J.R., John Hicks, 1939, Oxford University Press, second, 2001, London, 978-0-19-828269-3, Value and Capital, On the supply side of the market, some factors of production are described as (relatively) variable in the short run, which affects the cost of changing output levels. Their usage rates can be changed easily, such as electrical power, raw-material inputs, and over-time and temp work. Other inputs are relatively fixed, such as plant and equipment and key personnel. In the long run, all inputs may be adjusted by management. These distinctions translate to differences in the elasticity (responsiveness) of the supply curve in the short and long runs and corresponding differences in the price-quantity change from a shift on the supply or demand side of the market.Marginalist theory, such as above, describes the consumers as attempting to reach most-preferred positions, subject to income and wealth constraints while producers attempt to maximize profits subject to their own constraints, including demand for goods produced, technology, and the price of inputs. For the consumer, that point comes where marginal utility of a good, net of price, reaches zero, leaving no net gain from further consumption increases. Analogously, the producer compares marginal revenue (identical to price for the perfect competitor) against the marginal cost of a good, with marginal profit the difference. At the point where marginal profit reaches zero, further increases in production of the good stop. For movement to market equilibrium and for changes in equilibrium, price and quantity also change "at the margin": more-or-less of something, rather than necessarily all-or-nothing.Other applications of demand and supply include the distribution of income among the factors of production, including labour and capital, through factor markets. In a competitive labour market for example the quantity of labour employed and the price of labour (the wage rate) depends on the demand for labour (from employers for production) and supply of labour (from potential workers). Labour economics examines the interaction of workers and employers through such markets to explain patterns and changes of wages and other labour income, labour mobility, and (un)employment, productivity through human capital, and related public-policy issues.• ENCYCLOPEDIA, Richard B. Freeman, Freeman, Richard B., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman,weblink 10.1057/9780230226203.2907, The New Palgrave Dictionary of Economics, 1, 9780333786765, Labour economics,    • ENCYCLOPEDIA, Taber, Christopher, The New Palgrave Dictionary of Economics, 787–791, Bruce A., Weinberg, 2008, second, Steven N., Durlauf, Lawrence E., Blume,weblink 10.1057/9780230226203.0914, 978-0-333-78676-5, Labour economics (new perspectives),    • BOOK, Hicks, John R., 1963, 1932, second, The Theory of Wages, Macmillan, The Theory of Wages, Demand-and-supply analysis is used to explain the behaviour of perfectly competitive markets, but as a standard of comparison it can be extended to any type of market. It can also be generalized to explain variables across the economy, for example, total output (estimated as real GDP) and the general price level, as studied in macroeconomics.BOOK, Olivier Blanchard, Blanchard, Olivier, 2006, 4th, Macroeconomics, Chapter 7: Putting All Markets Together: The AS–AD Model, Prentice-Hall, 978-0-1318-6026-1, Tracing the qualitative and quantitative effects of variables that change supply and demand, whether in the short or long run, is a standard exercise in applied economics. Economic theory may also specify conditions such that supply and demand through the market is an efficient mechanism for allocating resources.JOURNAL, Jordan, J.S., October 1982, The Competitive Allocation Process Is Informationally Efficient Uniquely, Journal of Economic Theory, 28, 1, 1–18, 10.1016/0022-0531(82)90088-6,


People frequently do not trade directly on markets. Instead, on the supply side, they may work in and produce through firms. The most obvious kinds of firms are corporations, partnerships and trusts. According to Ronald Coase, people begin to organize their production in firms when the costs of doing business becomes lower than doing it on the market.JOURNAL, Coase, Ronald, Ronald Coase, 1937, The Nature of the Firm, Economica, 4, 16, 386–405, 2626876, 10.1111/j.1468-0335.1937.tb00002.x, The Nature of the Firm, Firms combine labour and capital, and can achieve far greater economies of scale (when the average cost per unit declines as more units are produced) than individual market trading.In perfectly competitive markets studied in the theory of supply and demand, there are many producers, none of which significantly influence price. Industrial organization generalizes from that special case to study the strategic behaviour of firms that do have significant control of price. It considers the structure of such markets and their interactions. Common market structures studied besides perfect competition include monopolistic competition, various forms of oligopoly, and monopoly.ENCYCLOPEDIA, Schmalensee, Richard, Richard L. Schmalensee, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman,weblink 10.1057/9780230226203.2788, The New Palgrave Dictionary of Economics, 1, 9780333786765, Industrial organization, 2027/uc1.$b37792, Managerial economics applies microeconomic analysis to specific decisions in business firms or other management units. It draws heavily from quantitative methods such as operations research and programming and from statistical methods such as regression analysis in the absence of certainty and perfect knowledge. A unifying theme is the attempt to optimize business decisions, including unit-cost minimization and profit maximization, given the firm's objectives and constraints imposed by technology and market conditions.• ENCYCLOPEDIA, 5 May 2013, Managerial Economics, Encyclopædia Britannica,weblink    • ENCYCLOPEDIA, Hughes, Alan, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman,weblink 10.1057/9780230226203.3017, The New Palgrave Dictionary of Economics, 1, 9780333786765, Managerial capitalism,

Uncertainty and game theory

Uncertainty in economics is an unknown prospect of gain or loss, whether quantifiable as risk or not. Without it, household behaviour would be unaffected by uncertain employment and income prospects, financial and capital markets would reduce to exchange of a single instrument in each market period, and there would be no communications industry.ENCYCLOPEDIA, Mark J. Machina, Machina, Mark J., The New Palgrave Dictionary of Economics, 190–197, Michael Rothschild, Rothschild, Michael, 2008, second, Steven N., Durlauf, Lawrence E., Blume,weblink 10.1057/9780230226203.1442, 978-0-333-78676-5, Risk, Given its different forms, there are various ways of representing uncertainty and modelling economic agents' responses to it.ENCYCLOPEDIA, Wakker, Peter P., 2008, second, Steven N., Durlauf, Lawrence E., Blume,weblink 10.1057/9780230226203.1753, The New Palgrave Dictionary of Economics, 428–439, 978-0-333-78676-5, Uncertainty, Game theory is a branch of applied mathematics that considers strategic interactions between agents, one kind of uncertainty. It provides a mathematical foundation of industrial organization, discussed above, to model different types of firm behaviour, for example in an solipsistic industry (few sellers), but equally applicable to wage negotiations, bargaining, contract design, and any situation where individual agents are few enough to have perceptible effects on each other. In behavioural economics, it has been used to model the strategies agents choose when interacting with others whose interests are at least partially adverse to their own.• {{harvp|Samuelson|Nordhaus|2004|loc=ch. 11, "Uncertainty and Game Theory" and [end] Glossary of Terms, "Economics of information", "Game theory", and "Regulation"}}   • BOOK, Camerer, Colin F., Colin F. Camerer, 2003, Behavioral Game Theory: Experiments in Strategic Interaction,weblink Chapter 1: Introduction,weblink Princeton University Press, 978-1-4008-4088-5, In this, it generalizes maximization approaches developed to analyse market actors such as in the supply and demand model and allows for incomplete information of actors. The field dates from the 1944 classic Theory of Games and Economic Behavior by John von Neumann and Oskar Morgenstern. It has significant applications seemingly outside of economics in such diverse subjects as formulation of nuclear strategies, ethics, political science, and evolutionary biology.ENCYCLOPEDIA, Robert Aumann, Aumann, R.J., 2008, Game Theory, The New Palgrave Dictionary of Economics, second, Steven N., Durlauf, Lawrence E., Blume,weblink Risk aversion may stimulate activity that in well-functioning markets smooths out risk and communicates information about risk, as in markets for insurance, commodity futures contracts, and financial instruments. Financial economics or simply finance describes the allocation of financial resources. It also analyses the pricing of financial instruments, the financial structure of companies, the efficiency and fragility of financial markets,JOURNAL, Ben Bernanke, Bernanke, Ben, Mark Gertler (economist), Mark, Gertler, February 1990, Financial Fragility and Economic Performance, Quarterly Journal of Economics, 105, 1, 87–114, 2937820, 10.2307/2937820,weblink financial crises, and related government policy or regulation.ENCYCLOPEDIA, From, The New Palgrave Dictionary of Economics, Steven N., Durlauf, Lawrence E., Blume, second, 2008, :   • ENCYCLOPEDIA, Stephen Ross (economist), Ross, Stephen A., Finance,weblink    • ENCYCLOPEDIA, Burnside, Craig, Martin, Eichenbaum, Sergio, Rebelo, Currency Crises Models,weblink    • ENCYCLOPEDIA, Kaminsky, Graciela Laura, Currency Crises,weblink    • ENCYCLOPEDIA, Calomiris, Charles W., Banking Crises,weblink Some market organizations may give rise to inefficiencies associated with uncertainty. Based on George Akerlof's "Market for Lemons" article, the paradigm example is of a dodgy second-hand car market. Customers without knowledge of whether a car is a "lemon" depress its price below what a quality second-hand car would be.JOURNAL, Akerlof, George A., August 1970, The Market for 'Lemons': Quality Uncertainty and the Market Mechanism, Quarterly Journal of Economics, 84, 3, 488–500, 1879431, 10.2307/1879431,weblinkweblink" title="">weblink 18 August 2011, Information asymmetry arises here, if the seller has more relevant information than the buyer but no incentive to disclose it. Related problems in insurance are adverse selection, such that those at most risk are most likely to insure (say reckless drivers), and moral hazard, such that insurance results in riskier behaviour (say more reckless driving).ENCYCLOPEDIA, Lippman, S.S., International Encyclopedia of the Social & Behavioral Sciences, 7480–7486, J.J., McCall, 2001, International Encyclopedia of the Social & Behavioral Sciences, Elsevier, 10.1016/B0-08-043076-7/02244-0, 9780080430768, Information, Economics of, Both problems may raise insurance costs and reduce efficiency by driving otherwise willing transactors from the market ("incomplete markets"). Moreover, attempting to reduce one problem, say adverse selection by mandating insurance, may add to another, say moral hazard. Information economics, which studies such problems, has relevance in subjects such as insurance, contract law, mechanism design, monetary economics, and health care. Applied subjects include market and legal remedies to spread or reduce risk, such as warranties, government-mandated partial insurance, restructuring or bankruptcy law, inspection, and regulation for quality and information disclosure.{{harvp|Samuelson|Nordhaus|2004|loc=ch. 11, "Uncertainty and Game Theory" and [end] Glossary of Terms, "Economics of information", "Game theory", and "Regulation"}}ENCYCLOPEDIA, From, The New Palgrave Dictionary of Economics, Steven N., Durlauf, Lawrence E., Blume, second, 2008, :   • ENCYCLOPEDIA, Wilson, Charles, Adverse Selection,weblink    • ENCYCLOPEDIA, Kotowitz, Y., Moral Hazard,weblink    • ENCYCLOPEDIA, Roger B. Myerson, Myerson, Roger B., Revelation Principle,weblink

Market failure

File:Smokestack in Detroit.jpg|thumb|upright=1.15|Pollution can be a simple example of market failure. If alt=A smokestack releasing smokeThe term "market failure" encompasses several problems which may undermine standard economic assumptions. Although economists categorize market failures differently, the following categories emerge in the main texts.{{efn|Compare with Nicholas Barr (2004), whose list of market failures is melded with failures of economic assumptions, which are (1) producers as price takers (i.e. presence of oligopoly or monopoly; but why is this not a product of the following?) (2) equal power of consumers (what labour lawyers call an imbalance of bargaining power) (3) complete markets (4) public goods (5) external effects (i.e. externalities?) (6) increasing returns to scale (i.e. practical monopoly) (7) perfect information (in BOOK, The Economics of the Welfare State,weblink 4th, 2004, Oxford University Press, 978-0-19-926497-1, 72–79, ).   • Joseph E. Stiglitz (2015) classifies market failures as from failure of competition (including natural monopoly), information asymmetries, incomplete markets, externalities, public good situations, and macroeconomic disturbances (in BOOK, Economics of the Public Sector: Fourth International Student Edition,weblink 4th, 2015, W. W. Norton & Company, 978-0-393-93709-1, 81–100, Chapter 4: Market Failure, ).}}Information asymmetries and incomplete markets may result in economic inefficiency but also a possibility of improving efficiency through market, legal, and regulatory remedies, as discussed above.Natural monopoly, or the overlapping concepts of "practical" and "technical" monopoly, is an extreme case of failure of competition as a restraint on producers. Extreme economies of scale are one possible cause.Public goods are goods which are under-supplied in a typical market. The defining features are that people can consume public goods without having to pay for them and that more than one person can consume the good at the same time.Externalities occur where there are significant social costs or benefits from production or consumption that are not reflected in market prices. For example, air pollution may generate a negative externality, and education may generate a positive externality (less crime, etc.). Governments often tax and otherwise restrict the sale of goods that have negative externalities and subsidize or otherwise promote the purchase of goods that have positive externalities in an effort to correct the price distortions caused by these externalities.ENCYCLOPEDIA, Jean-Jacques Laffont, Laffont, J.J., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, 263–265,weblink 10.1057/9780230226203.2520, The New Palgrave Dictionary of Economics, 9780333786765, Externalities, Elementary demand-and-supply theory predicts equilibrium but not the speed of adjustment for changes of equilibrium due to a shift in demand or supply.{{sfn|Blaug|2017|p=347}}In many areas, some form of price stickiness is postulated to account for quantities, rather than prices, adjusting in the short run to changes on the demand side or the supply side. This includes standard analysis of the business cycle in macroeconomics. Analysis often revolves around causes of such price stickiness and their implications for reaching a hypothesized long-run equilibrium. Examples of such price stickiness in particular markets include wage rates in labour markets and posted prices in markets deviating from perfect competition.File:Field Trip- water sampling.jpg|thumb|upright=1.15|alt=A woman takes samples of water from a river.Some specialized fields of economics deal in market failure more than others. The economics of the public sector is one example. Much environmental economics concerns externalities or "public bads".Policy options include regulations that reflect cost-benefit analysis or market solutions that change incentives, such as emission fees or redefinition of property rights.• ENCYCLOPEDIA, Kneese, Allen K., The New Palgrave Dictionary of Economics, Clifford S., Russell, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, 159–164,weblink 10.1057/9780230226203.2480, 9780333786765, Environmental economics,    • {{harvp|Samuelson|Nordhaus|2004|loc=ch. 18, "Protecting the Environment."}}

Public sector

{{See also|Welfare economics}}Public finance is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. The subject addresses such matters as tax incidence (who really pays a particular tax), cost-benefit analysis of government programmes, effects on economic efficiency and income distribution of different kinds of spending and taxes, and fiscal politics. The latter, an aspect of public choice theory, models public-sector behaviour analogously to microeconomics, involving interactions of self-interested voters, politicians, and bureaucrats.ENCYCLOPEDIA, Musgrave, Richard A., The New Palgrave Dictionary of Economics, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, Richard Musgrave (economist), 1055–1060,weblink 10.1057/9780230226203.3360, 9780333786765, Public finance, Much of economics is positive, seeking to describe and predict economic phenomena. Normative economics seeks to identify what economies ought to be like.Welfare economics is a normative branch of economics that uses microeconomic techniques to simultaneously determine the allocative efficiency within an economy and the income distribution associated with it. It attempts to measure social welfare by examining the economic activities of the individuals that comprise society.ENCYCLOPEDIA, Feldman, Allan M., The New Palgrave Dictionary of Economics, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, 889–095,weblink 10.1057/9780230226203.3785, 9780333786765, Welfare economics,


File:DiagFuncMacroSyst.pdf|thumb|upright=2.05|The circulation of money in an economy in a macroeconomic model.]]Macroeconomics examines the economy as a whole to explain broad aggregates and their interactions "top down", that is, using a simplified form of general-equilibrium theory.{{sfnp|Blaug|2017|p=345}} Such aggregates include national income and output, the unemployment rate, and price inflation and subaggregates like total consumption and investment spending and their components. It also studies effects of monetary policy and fiscal policy.Since at least the 1960s, macroeconomics has been characterized by further integration as to micro-based modelling of sectors, including rationality of players, efficient use of market information, and imperfect competition.JOURNAL, Business Confidence and Depression Prevention: A Mesoeconomic Perspective, Ng, Yew-Kwang, Yew-Kwang Ng, The American Economic Review, 0002-8282, 82, 2, May 1992, 365–371, 2117429, This has addressed a long-standing concern about inconsistent developments of the same subject.ENCYCLOPEDIA, Howitt, Peter M., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, 273–276,weblink 10.1057/9780230226203.3008, The New Palgrave Dictionary of Economics, 9780333786765, Macroeconomics: Relations with microeconomics, Macroeconomic analysis also considers factors affecting the long-term level and growth of national income. Such factors include capital accumulation, technological change and labour force growth.{{sfnp|Blaug|2017|p=349}}


Growth economics studies factors that explain economic growth â€“ the increase in output per capita of a country over a long period of time. The same factors are used to explain differences in the level of output per capita between countries, in particular why some countries grow faster than others, and whether countries converge at the same rates of growth.Much-studied factors include the rate of investment, population growth, and technological change. These are represented in theoretical and empirical forms (as in the neoclassical and endogenous growth models) and in growth accounting.• {{harvp|Samuelson|Nordhaus|2004|loc=ch. 27, "The Process of Economic Growth"}}   • ENCYCLOPEDIA, Hirofumi Uzawa, Uzawa, H., 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, 483–489,weblink 10.1057/9780230226203.3097, The New Palgrave Dictionary of Economics, 9780333786765, Models of growth,

Business cycle

{{See also|Circular flow of income|Aggregate supply|Aggregate demand|Unemployment}}File:Economic cycle.svg|thumb|upright=2.05|A basic illustration of economic/business cycles.]]The economics of a depression were the spur for the creation of "macroeconomics" as a separate discipline. During the Great Depression of the 1930s, John Maynard Keynes authored a book entitled The General Theory of Employment, Interest and Money outlining the key theories of Keynesian economics. Keynes contended that aggregate demand for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output.He therefore advocated active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.BOOK, O'Sullivan, Arthur, Arthur O'Sullivan (economist), Steven M., Sheffrin, Steven M. Sheffrin, Economics: Principles in Action, Pearson Prentice Hall, 2003, 396, 978-0-13-063085-8, Thus, a central conclusion of Keynesian economics is that, in some situations, no strong automatic mechanism moves output and employment towards full employment levels. John Hicks' IS/LM model has been the most influential interpretation of The General Theory.Over the years, understanding of the business cycle has branched into various research programmes, mostly related to or distinct from Keynesianism. The neoclassical synthesis refers to the reconciliation of Keynesian economics with neoclassical economics, stating that Keynesianism is correct in the short run but qualified by neoclassical-like considerations in the intermediate and long run.ENCYCLOPEDIA, Olivier J. Blanchard, Blanchard, Olivier Jean, 2008, Steven N., Durlauf, Lawrence E., Blume, second,weblink 10.1057/9780230226203.1172, The New Palgrave Dictionary of Economics, 896–899, 978-0-333-78676-5, Neoclassical synthesis, New classical macroeconomics, as distinct from the Keynesian view of the business cycle, posits market clearing with imperfect information. It includes Friedman's permanent income hypothesis on consumption and "rational expectations" theory,WEB,weblink The Macroeconomist as Scientist and Engineer, N. Gregory, Mankiw, Harvard University, May 2006,weblink" title="">weblink 18 January 2012, led by Robert Lucas, and real business cycle theory.ENCYCLOPEDIA, Stanley Fischer, Fischer, Stanley, 2008, Steven N., Durlauf, Lawrence E., Blume, second,weblink 10.1057/9780230226203.1180, The New Palgrave Dictionary of Economics, 17–22, 978-0-333-78676-5, New classical macroeconomics, In contrast, the new Keynesian approach retains the rational expectations assumption, however it assumes a variety of market failures. In particular, New Keynesians assume prices and wages are "sticky", which means they do not adjust instantaneously to changes in economic conditions.ENCYCLOPEDIA, Dixon, Huw David, 2008, Steven N., Durlauf, Lawrence E., Blume, second,weblink 10.1057/9780230226203.1184, The New Palgrave Dictionary of Economics, 40–45, 978-0-333-78676-5, New Keynesian macroeconomics, Thus, the new classicals assume that prices and wages adjust automatically to attain full employment, whereas the new Keynesians see full employment as being automatically achieved only in the long run, and hence government and central-bank policies are needed because the "long run" may be very long.


File:US employment 1995-2012.png|thumb|upright=2.05|The percentage of the US population employed, 1995–2012.]]The amount of unemployment in an economy is measured by the unemployment rate, the percentage of workers without jobs in the labour force. The labour force only includes workers actively looking for jobs. People who are retired, pursuing education, or discouraged from seeking work by a lack of job prospects are excluded from the labour force. Unemployment can be generally broken down into several types that are related to different causes.BOOK, harv, Dwivedi, D. N., Macroeconomics: Theory and Policy,weblink 2005, Tata McGraw-Hill Education, 978-0-07-058841-7, Classical models of unemployment occurs when wages are too high for employers to be willing to hire more workers. Consistent with classical unemployment, frictional unemployment occurs when appropriate job vacancies exist for a worker, but the length of time needed to search for and find the job leads to a period of unemployment.Structural unemployment covers a variety of possible causes of unemployment including a mismatch between workers' skills and the skills required for open jobs.ENCYCLOPEDIA, Freeman, C., Steven N., Durlauf, Lawrence E., Blume, 2008, second,weblink 10.1057/9780230226203.1641, The New Palgrave Dictionary of Economics, 64–66, 978-0-333-78676-5, Structural unemployment, Large amounts of structural unemployment can occur when an economy is transitioning industries and workers find their previous set of skills are no longer in demand. Structural unemployment is similar to frictional unemployment since both reflect the problem of matching workers with job vacancies, but structural unemployment covers the time needed to acquire new skills not just the short term search process.{{sfnp|Dwivedi|2005|pp=444–445}}While some types of unemployment may occur regardless of the condition of the economy, cyclical unemployment occurs when growth stagnates. Okun's law represents the empirical relationship between unemployment and economic growth.{{sfnp|Dwivedi|2005|pp=445–446}} The original version of Okun's law states that a 3% increase in output would lead to a 1% decrease in unemployment.JOURNAL, Neely, Christopher J.,weblink Okun's Law: Output and Unemployment, Economic Synopses, Number 4, 2010,

Inflation and monetary policy

{{See also|Money|Quantity theory of money|History of money}}Money is a means of final payment for goods in most price system economies, and is the unit of account in which prices are typically stated. Money has general acceptability, relative consistency in value, divisibility, durability, portability, elasticity in supply, and longevity with mass public confidence. It includes currency held by the nonbank public and checkable deposits. It has been described as a social convention, like language, useful to one largely because it is useful to others. In the words of Francis Amasa Walker, a well-known 19th-century economist, "Money is what money does" ("Money is that money does" in the original).BOOK, Francis Amasa Walker, Francis Amasa Walker, Money,weblink 5 November 2017, 1878, Henry Holt and Company, New York, 405, As a medium of exchange, money facilitates trade. It is essentially a measure of value and more importantly, a store of value being a basis for credit creation. Its economic function can be contrasted with barter (non-monetary exchange). Given a diverse array of produced goods and specialized producers, barter may entail a hard-to-locate double coincidence of wants as to what is exchanged, say apples and a book. Money can reduce the transaction cost of exchange because of its ready acceptability. Then it is less costly for the seller to accept money in exchange, rather than what the buyer produces.ENCYCLOPEDIA, James Tobin, Tobin, James, 1992, Money (Money as a Social Institution and Public Good), The New Palgrave Dictionary of Finance and Money, Volume 2, Peter K., Newman, Murray, Milgate, John, Eatwell, 770–771, 978-1-5615-9041-4,weblink At the level of an economy, theory and evidence are consistent with a positive relationship running from the total money supply to the nominal value of total output and to the general price level. For this reason, management of the money supply is a key aspect of monetary policy.• ENCYCLOPEDIA, Friedman, Milton, Milton Friedman, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter K., Newman
,weblink 10.1057/9780230226203.3371, The New Palgrave Dictionary of Economics, 1, 9780333786765, Quantity theory of money,    • {{harvp|Samuelson|Nordhaus|2004|loc=ch. 2, "Money: The Lubricant of Exchange" section, ch. 33, Fig. 33–3}}

Fiscal policy

Governments implement fiscal policy to influence macroeconomic conditions by adjusting spending and taxation policies to alter aggregate demand. When aggregate demand falls below the potential output of the economy, there is an output gap where some productive capacity is left unemployed. Governments increase spending and cut taxes to boost aggregate demand. Resources that have been idled can be used by the government.For example, unemployed home builders can be hired to expand highways. Tax cuts allow consumers to increase their spending, which boosts aggregate demand. Both tax cuts and spending have multiplier effects where the initial increase in demand from the policy percolates through the economy and generates additional economic activity.The effects of fiscal policy can be limited by crowding out. When there is no output gap, the economy is producing at full capacity and there are no excess productive resources. If the government increases spending in this situation, the government uses resources that otherwise would have been used by the private sector, so there is no increase in overall output. Some economists think that crowding out is always an issue while others do not think it is a major issue when output is depressed.Sceptics of fiscal policy also make the argument of Ricardian equivalence. They argue that an increase in debt will have to be paid for with future tax increases, which will cause people to reduce their consumption and save money to pay for the future tax increase. Under Ricardian equivalence, any boost in demand from tax cuts will be offset by the increased saving intended to pay for future higher taxes.

International economics

(File:Countries by GDP (PPP) Per Capita in 2014.svg|thumb|upright=1.8|List of countries by GDP (PPP) per capita in 2014.)International trade studies determinants of goods-and-services flows across international boundaries. It also concerns the size and distribution of gains from trade. Policy applications include estimating the effects of changing tariff rates and trade quotas. International finance is a macroeconomic field which examines the flow of capital across international borders, and the effects of these movements on exchange rates. Increased trade in goods, services and capital between countries is a major effect of contemporary globalization.• ENCYCLOPEDIA, Anderson, James E., 2008, second, Steven N., Durlauf, Lawrence E., Blume,weblink 10.1057/9780230226203.0839, The New Palgrave Dictionary of Economics, 516–522, 978-0-333-78676-5, International trade theory,    • BOOK, Venables, A., 2001, International Trade: Economic Integration, International Encyclopedia of the Social & Behavioral Sciences, 7843–7848, 10.1016/B0-08-043076-7/02259-2, 9780080430768,    • ENCYCLOPEDIA, Obstfeld, Maurice, 2008, second, Steven N., Durlauf, Lawrence E., Blume,weblink 10.1057/9780230226203.0828, The New Palgrave Dictionary of Economics, 439–451, 978-0-333-78676-5, International finance,

Development economics

The distinct field of development economics examines economic aspects of the economic development process in relatively low-income countries focusing on structural change, poverty, and economic growth. Approaches in development economics frequently incorporate social and political factors.• ENCYCLOPEDIA, Bell, Clive, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, 1, 818–826,weblink 10.1057/9780230226203.2366, The New Palgrave Dictionary of Economics, 9780333786765, Development economics,    • {{harvp|Blaug|2017|p=351}}


{{Unbalanced|date=February 2017}}According to various random and anonymous surveys of members of the American Economic Association, economists have agreement about the following propositions by percentage:BOOK, Mankiw, N. Gregory, Principles of Microeconomics,weblink 7th, 2014, Cengage Learning, 978-1-305-15605-0, 32, JOURNAL, Alston, Richard M., Kearl, J.R., James R. Kearl, Vaughan, Michael B., Is There a Consensus Among Economists in the 1990's?, May 1992, The American Economic Review, 82, 2, 203–209, 2117401,weblink JOURNAL, Fuller, Dan, Geide-Stevenson, Doris, Consensus Among Economists: Revisited, Fall 2003, Journal of Economic Education, The Journal of Economic Education, 34, 4, 369–387, 30042564, 10.1080/00220480309595230, JOURNAL, Whaples, Robert, Robert Whaples, Do Economists Agree on Anything? Yes!, The Economists' Voice, 3, 9, 1–6,weblink November 2006, 10.2202/1553-3832.1156, JOURNAL, Whaples, Robert, The Policy Views of American Economic Association Members: The Results of a New Survey, September 2009, Econ Journal Watch, 6, 3, 337–348,weblink harv,
  1. A ceiling on rents reduces the quantity and quality of housing available. (93% agree)
  2. Tariffs and import quotas usually reduce general economic welfare. (93% agree)
  3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90% agree)
  4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90% agree)
  5. The United States should not restrict employers from outsourcing work to foreign countries. (90% agree)
  6. Economic growth in developed countries like the United States leads to greater levels of well-being. (88% agree)
  7. The United States should eliminate agricultural subsidies. (85% agree)
  8. An appropriately designed fiscal policy can increase the long-run rate of capital formation. (85% agree)
  9. Local and state governments should eliminate subsidies to professional sports franchises. (85% agree)
  10. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85% agree)
  11. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85% agree)
  12. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84% agree)
  13. A large federal budget deficit has an adverse effect on the economy. (83% agree)
  14. The redistribution of income in the United States is a legitimate role for the government. (83% agree)
  15. Inflation is caused primarily by too much growth in the money supply. (83% agree)
  16. The United States should not ban genetically modified crops. (82% agree)
  17. A minimum wage increases unemployment among young and unskilled workers. (79% agree)
  18. The government should restructure the welfare system along the lines of a "negative income tax." (79% agree)
  19. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78% agree)
  20. Government subsidies on ethanol in the United States should be reduced or eliminated. (78% agree)


General criticisms

"The dismal science" is a derogatory alternative name for economics devised by the Victorian historian Thomas Carlyle in the 19th century. It is often stated that Carlyle gave economics the nickname "the dismal science" as a response to the late 18th century writings of The Reverend Thomas Robert Malthus, who grimly predicted that starvation would result, as projected population growth exceeded the rate of increase in the food supply. However, the actual phrase was coined by Carlyle in the context of a debate with John Stuart Mill on slavery, in which Carlyle argued for slavery, while Mill opposed it.Some economists, like John Stuart Mill or Léon Walras, have maintained that the production of wealth should not be tied to its distribution.BOOK, Routh, Guy, Guy Routh, The Origin of Economic Ideas,weblink second, 1989, Palgrave Macmillan UK, 978-1-349-20169-3, In The Wealth of Nations, Adam Smith addressed many issues that are currently also the subject of debate and dispute. Smith repeatedly attacks groups of politically aligned individuals who attempt to use their collective influence to manipulate a government into doing their bidding. In Smith's day, these were referred to as factions, but are now more commonly called special interests, a term which can comprise international bankers, corporate conglomerations, outright oligopolies, monopolies, trade unions and other groups.{{efn|See WEB, Noam, Chomsky, Noam Chomsky, Understanding Power, Ruling the World,weblinkweblink" title="">weblink dead, 14 October 2008, 14 October 2008, on Smith's emphasis on class conflict in the Wealth of Nations.}}Economics per se, as a social science, is independent of the political acts of any government or other decision-making organization; however, many policymakers or individuals holding highly ranked positions that can influence other people's lives are known for arbitrarily using a plethora of economic concepts and rhetoric as vehicles to legitimize agendas and value systems, and do not limit their remarks to matters relevant to their responsibilities.NEWS, Sara, Ledwith, Antonella, Ciancio,weblink Special Report: Crisis Forces "Dismal Science" to get Real, Reuters, 3 July 2012, The close relation of economic theory and practice with politicsBOOK, Sirkku K., Hellsten, Ethics, Rhetoric and Politics of Post-conflict Reconstruction How Can the Concept of Social Contract Help Us in Understanding How to Make Peace Work?,weblink Making Peace Work, Tony, Addison, Tilman, Brück, Palgrave Macmillan, 75–100, 978-0-230-59519-4, 10.1057/9780230595194, 2009, is a focus of contention that may shade or distort the most unpretentious original tenets of economics, and is often confused with specific social agendas and value systems.BOOK, Hahn, Dan F., Political Communication: Rhetoric, Government, and Citizens,weblink second, 2003, Strata, 978-1-891136-08-5, Notwithstanding, economics legitimately has a role in informing government policy. It is, indeed, in some ways an outgrowth of the older field of political economy. Some academic economic journals have increased their efforts to gauge the consensus of economists regarding certain policy issues in hopes of effecting a more informed political environment. Often there exists a low approval rate from professional economists regarding many public policies. Policy issues featured in one survey of American Economic Association economists include trade restrictions, social insurance for those put out of work by international competition, genetically modified foods, curbside recycling, health insurance (several questions), medical malpractice, barriers to entering the medical profession, organ donations, unhealthy foods, mortgage deductions, taxing internet sales, Wal-Mart, casinos, ethanol subsidies, and inflation targeting.{{sfnp|Whaples|2009}}In Steady State Economics 1977, leading ecological economist and steady-state theorist Herman Daly argues that there exist logical inconsistencies between the emphasis placed on economic growth and the limited availability of natural resources.BOOK, Daly, Herman E., Herman Daly, Steady-State Economics,weblink second, 1991, Island Press, 978-1-59726-872-1, 98–128, The Catechism of Growth Fallacies, Issues like central bank independence, central bank policies and rhetoric in central bank governors discourse or the premises of macroeconomic policiesWEB, Johan, Scholvinck, Making the Case for the Integration of Social and Economic Policy, UN Division for Social Policy and Development,weblink 18 November 2007,weblink" title="">weblink (monetary and fiscal policy) of the state, are focus of contention and criticism.• JOURNAL, Bernd, Hayo, Carsten, Hefeker,weblink Do We Really Need Central Bank Independence? A Critical Re-examination, WWZ-Discussion Paper 01/03, March 2001,    • JOURNAL, Gabriel, Mangano, Measuring Central Bank Independence: A Tale of Subjectivity and of Its Consequences, Oxford Economic Papers, 1 July 1998, 50, 3, 468–492, 10.1093/oxfordjournals.oep.a028657,    • JOURNAL, Friedrich, Heinemann, Katrin, Ullrich, Does it Pay to Watch Central Bankers' Lips? The Information Content of ECB Wording, ZEW - Centre for European Economic Research Discussion Paper No. 05-070, 3 November 2005,weblink 10.2139/ssrn.832905,    • JOURNAL, Stephen G., Cecchetti, Policy Rules and Targets: Framing the Central Banker's Problem, FRBNY Economic Policy Review, 1998, 4, 2, 1–14,weblink Deirdre McCloskey has argued that many empirical economic studies are poorly reported, and she and Stephen Ziliak argue that although her critique has been well-received, practice has not improved.JOURNAL, Ziliak, Stephen T., McCloskey, Deirdre N., April 2004, Size Matters: The Standard Error of Regressions in the American Economic Review, Econ Journal Watch, 1, 2, 331–358,weblink This latter contention is controversial.{{sfnp|Hoover|Siegler|2008}}A 2002 International Monetary Fund study assessed the national economic growth predictions from Consensus Forecasts in the 1990s. Of the 60 different national recessions that occurred, only 2 (3%) were predicted a year in advance.JOURNAL, How Accurate Are Private Sector Forecasts? Cross-Country Evidence from Consensus Forecasts of Output Growth, Prakash, Loungani, IMF Working Paper, April 2000,weblink

Criticisms of assumptions

Economics has been subject to criticism that it relies on unrealistic, unverifiable, or highly simplified assumptions, in some cases because these assumptions simplify the proofs of desired conclusions. Examples of such assumptions include perfect information, profit maximization and rational choices.JOURNAL, Rappaport, Steven, 28 July 1996, Abstraction and Unrealistic Assumptions in Economics, Journal of Economic Methodology, 3, 2, 215–236, 10.1080/13501789600000016,    • BOOK, Rappaport, Steven, Models and Reality in Economics,weblink 1998, Edward Elgar, 978-1-85898-575-6, Chapter 6: Economic Models,    • {{harvp|Friedman|1953|pages=14–15, 22, 31}}   • ENCYCLOPEDIA, Boland, Lawrence A., 2008, second, Steven N., Durlauf, Lawrence E., Blume,weblink 10.1057/9780230226203.0067, The New Palgrave Dictionary of Economics, 267–270, 978-0-333-78676-5, Assumptions controversy, The field of information economics includes both mathematical-economical research and also behavioural economics, akin to studies in behavioural psychology.JOURNAL, Hodgson, Geoffrey M., December 2007, Evolutionary and Institutional Economics as the New Mainstream, Evolutionary and Institutional Economics Review, 4, 1, 7–25, 10.14441/eier.4.7,, Nevertheless, prominent mainstream economists such as KeynesJOURNAL, Keynes, J. M., Alfred Marshall 1842–1924, The Economic Journal, 34, 135, 311–72, September 1924, 2222645, 10.2307/2222645, and Joskow have observed that much of economics is conceptual rather than quantitative, and difficult to model and formalize quantitatively. In a discussion on oligopoly research, Paul Joskow pointed out in 1975 that in practice, serious students of actual economies tended to use "informal models" based upon qualitative factors specific to particular industries. Joskow had a strong feeling that the important work in oligopoly was done through informal observations while formal models were "trotted out ex post". He argued that formal models were largely not important in the empirical work, either, and that the fundamental factor behind the theory of the firm, behaviour, was neglected.JOURNAL, Joskow, Paul, Firm Decision-making Policy and Oligopoly Theory, The American Economic Review, 65, 2, Papers and Proceedings of the Eighty–seventh Annual Meeting of the American Economic Association, 270–279, esp. 271, May 1975, 1818864, In recent years, feminist critiques of neoclassical economic models gained prominence, leading to the formation of feminist economics.BOOK, England, Paula, 1993, The Separative Self: Androcentric Bias in Neoclassical Assumptions, Ferber, Marianne A., Nelson, Julie A., Beyond Economic Man: Feminist Theory and Economics,weblink University of Chicago Press, 978-0-226-24201-9, 37–53, Contrary to common conceptions of economics as a positive and objective science, feminist economists call attention to the social construction of economicsBOOK, Ferber, Marianne A., Nelson, Julie A., Introduction: Beyond Economic Man: Ten Years Later, Feminist Economics Today: Beyond Economic Man,weblink 2003, University of Chicago Press, 978-0-226-24207-1, and highlight the ways in which its models and methods reflect masculine preferences. Primary criticisms focus on failures to account for: the selfish nature of actors (homo economicus); exogenous tastes; the impossibility of utility comparisons; the exclusion of unpaid work; and the exclusion of class and gender considerations. Feminist economics developed to address these concerns, and the field now includes critical examinations of many areas of economics including paid and unpaid work, economic epistemology and history, globalization, household economics and the care economy. In 1988, Marilyn Waring published the book If Women Counted, in which she argues that the discipline of economics ignores women's unpaid work and the value of nature;BOOK, Marilyn, Waring, 1988, If Women Counted, Harper & Row, 978-0-06-250933-8, If Women Counted, according to Julie A. Nelson, If Women Counted "showed exactly how the unpaid work traditionally done by women has been made invisible within national accounting systems" and "issued a wake-up call to issues of ecological sustainability."BOOK, Nelson, Julie A., Foreword,weblink Bjørnholt, Margunn, Margunn Bjørnholt, McKay, Ailsa, Ailsa McKay, Counting on Marilyn Waring: New Advances in Feminist Economics, 2014, Demeter Press, 978-1-9273-3527-7, Bjørnholt and McKay argue that the financial crisis of 2007–08 and the response to it revealed a crisis of ideas in mainstream economics and within the economics profession, and call for a reshaping of both the economy, economic theory and the economics profession. They argue that such a reshaping should include new advances within feminist economics that take as their starting point the socially responsible, sensible and accountable subject in creating an economy and economic theories that fully acknowledge care for each other as well as the planet.BOOK, Bjørnholt, Margunn, McKay, Ailsa, Ailsa McKay, Bjørnholt, Margunn, Margunn Bjørnholt, McKay, Ailsa, Ailsa McKay, Counting on Marilyn Waring: New Advances in Feminist Economics,weblink 2014, Demeter Press, 7–20, Advances in Feminist Economics in Times of Economic Crisis, 978-1-9273-3527-7, Philip Mirowski observes that:}}In a series of peer-reviewed journal and conference papers and books published over a period of several decades, John McMurtry has provided extensive criticism of what he terms the "unexamined assumptions and implications [of economics], and their consequent cost to people's lives."BOOK, McMurtry, John, The Cancer Stage of Capitalism,weblink 1999, Pluto Press, 978-0-7453-1347-4, {{efn|Please see partial list of publications, including peer-reviewed papers and books, on McMurtry's wikipedia page, as well as links to the text of several of his peer-reviewed papers and peer-reviewed secondary references analyzing and discussing his work.}}Nassim Nicholas Taleb and Michael Perelman are two additional scholars who criticized conventional or mainstream economics. Taleb opposes most economic theorizing, which in his view suffers acutely from the problem of overuse of Plato's Theory of Forms, and calls for cancellation of the Nobel Memorial Prize in Economics, saying that the damage from economic theories can be devastating.NEWS, Cox, Adam,weblink Blame Nobel for crisis, says author of 'Black Swan', Reuters, 28 September 2010,    • WEB, Taleb, Nassim Nicholas, The Pseudo-Science Hurting Markets, Financial Times, 23 October 2007,weblink Michael Perelman provides extensive criticism of economics and its assumptions in all his books (and especially his books published from 2000 to date), papers and interviews.Despite these concerns, mainstream graduate programs have become increasingly technical and mathematical.• JOURNAL, Johansson, D., 2004, Economics without Entrepreneurship or Institutions: A Vocabulary Analysis of Graduate Textbooks, Econ Journal Watch, 1, 3, 515–538,weblink 25 June 2008, live,weblink" title="">weblink    • JOURNAL, Sutter, Daniel, Rex, Pjesky, May 2007, Where Would Adam Smith Publish Today? The Near Absence of Math-free Research in Top Journals, Econ Journal Watch, 4, 2, 230–240,weblink

Related subjects

Economics is one social science among several and has fields bordering on other areas, including economic geography, economic history, public choice, energy economics, (JEL classification codes#Other special topics (economics) JEL: Z Subcategories|cultural economics), family economics and institutional economics.Law and economics, or economic analysis of law, is an approach to legal theory that applies methods of economics to law. It includes the use of economic concepts to explain the effects of legal rules, to assess which legal rules are economically efficient, and to predict what the legal rules will be.• ENCYCLOPEDIA, David D. Friedman, Friedman, David, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, III, 144,weblink 10.1057/9780230226203.2937, The New Palgrave Dictionary of Economics, 9780333786765, Law and economics,    • BOOK, Posner, Richard A., Richard Posner, Economic Analysis of Law,weblink 7th, 2007, Aspen, 978-0-7355-6354-4, {{page needed|date=October 2017}} A seminal article by Ronald Coase published in 1961 suggested that well-defined property rights could overcome the problems of externalities.JOURNAL, Coase, Ronald, The Problem of Social Cost, The Journal of Law and Economics, 3, 1, October 1960, 1–44, 724810, 10.1086/466560, The Problem of Social Cost, Political economy is the interdisciplinary study that combines economics, law, and political science in explaining how political institutions, the political environment, and the economic system (capitalist, socialist, mixed) influence each other. It studies questions such as how monopoly, rent-seeking behaviour, and externalities should impact government policy.• ENCYCLOPEDIA, Groenewegen, Peter, 2008, Political Economy, 476–480, The New Palgrave Dictionary of Economics, Steven N., Durlauf, Lawrence E., Blume, second,weblink 10.1057/9780230226203.1300, 'political economy', 978-0-333-78676-5,    • JOURNAL, Anne Osborn Krueger, Krueger, Anne O., June 1974, The Political Economy of the Rent-Seeking Society, American Economic Review, 64, 3, 91–303, 1808883, Historians have employed political economy to explore the ways in the past that persons and groups with common economic interests have used politics to effect changes beneficial to their interests.BOOK, McCoy, Drew R., The Elusive Republic: Political Economy in Jeffersonian America, University of North Carolina Press, 1980, 978-0-8078-1416-1,weblink Energy economics is a broad scientific subject area which includes topics related to energy supply and energy demand. Georgescu-Roegen reintroduced the concept of entropy in relation to economics and energy from thermodynamics, as distinguished from what he viewed as the mechanistic foundation of neoclassical economics drawn from Newtonian physics. His work contributed significantly to thermoeconomics and to ecological economics. He also did foundational work which later developed into evolutionary economics.• JOURNAL, Cleveland, Cutler J., Ruth, Matthius, September 1997, When, where, and by how much do biophysical limits constrain the economic process? A survey of Georgescu-Roegen's contribution to ecological economics, Ecological Economics (journal), Ecological Economics, 22, 3, 203–223, 10.1016/S0921-8009(97)00079-7,    • JOURNAL, Daly, Herman E., June 1995, On Nicholas Georgescu-Roegen's Contributions to Economics: An Obituary essay, Ecological Economics, 13, 3, 149–154, 10.1016/0921-8009(95)00011-W,    • JOURNAL, Mayumi, Kozo, August 1995, Nicholas Georgescu-Roegen (1906–1994): an admirable epistemologist, Structural Change and Economic Dynamics, 6, 3, 115–120, 10.1016/0954-349X(95)00014-E,    • BOOK, Mayumi, Kozo, Gowdy, John M., 1999, Bioeconomics and Sustainability: Essays in Honor of Nicholas Georgescu-Roegen, Edward Elgar Publishering, 978-1-85898-667-8,weblink    • BOOK, Mayumi, Kozo, 2001, The Origins of Ecological Economics: The Bioeconomics of Georgescu-Roegen, Routledge, 978-0-415-23523-5,weblink The sociological subfield of economic sociology arose, primarily through the work of Émile Durkheim, Max Weber and Georg Simmel, as an approach to analysing the effects of economic phenomena in relation to the overarching social paradigm (i.e. modernity).BOOK, Principles of Economic Sociology, Richard, Swedberg, 2003, Princeton University Press, 978-0-691-07439-9,weblink Classic works include Max Weber's The Protestant Ethic and the Spirit of Capitalism (1905) and Georg Simmel's The Philosophy of Money (1900). More recently, the works of Mark Granovetter, Peter Hedstrom and Richard Swedberg have been influential in this field.


Contemporary economics uses mathematics. Economists draw on the tools of calculus, linear algebra, statistics, game theory, and computer science.ENCYCLOPEDIA, Gérard Debreu, Debreu, Gérard, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, 401–403,weblink 10.1057/9780230226203.3059, The New Palgrave Dictionary of Economics, 9780333786765, Mathematical economics, Professional economists are expected to be familiar with these tools, while a minority specialize in econometrics and mathematical methods.

Empirical investigation

Economic theories are frequently tested empirically, largely through the use of econometrics using economic data.ENCYCLOPEDIA, Hashem, M. Pesaren, 1987, The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, II, 8,weblink 10.1057/9780230226203.2430, The New Palgrave Dictionary of Economics, 9780333786765, Econometrics, The controlled experiments common to the physical sciences are difficult and uncommon in economics,BOOK, Keuzenkamp, Hugo A., Hugo A. Keuzenkamp, Probability, Econometrics and Truth: The Methodology of Econometrics,weblink 2000, Cambridge University Press, 978-0-521-55359-9, 13, economics, controlled experiments are rare and reproducible controlled experiments even more so..., and instead broad data is observationally studied; this type of testing is typically regarded as less rigorous than controlled experimentation, and the conclusions typically more tentative. However, the field of experimental economics is growing, and increasing use is being made of natural experiments.Statistical methods such as regression analysis are common. Practitioners use such methods to estimate the size, economic significance, and statistical significance ("signal strength") of the hypothesized relation(s) and to adjust for noise from other variables. By such means, a hypothesis may gain acceptance, although in a probabilistic, rather than certain, sense. Acceptance is dependent upon the falsifiable hypothesis surviving tests. Use of commonly accepted methods need not produce a final conclusion or even a consensus on a particular question, given different tests, data sets, and prior beliefs.Criticisms based on professional standards and non-replicability of results serve as further checks against bias, errors, and over-generalization,{{sfnp|Frey|Pommerehne|Schneider|Gilbert|1984|pages=986–994}}{{Sfnp|Blaug|2017|page=247}} although much economic research has been accused of being non-replicable, and prestigious journals have been accused of not facilitating replication through the provision of the code and data.JOURNAL, McCullough, B.D., September 2007, Got Replicability? The Journal of Money, Banking and Credit Archive, Econ Journal Watch, 4, 3, 326–337,weblink Like theories, uses of test statistics are themselves open to critical analysis,• BOOK, Kennedy, Peter, A Guide to Econometrics,weblink fifth, 2003, MIT Press, 978-0-262-61183-1, 390–396, 21.2 The Ten Commandments of Applied Econometrics,    • JOURNAL, McCloskey, Deirdre N., Stephen T., Ziliak, March 1996, The Standard Error of Regressions, Journal of Economic Literature, 34, 1, 97–114,weblink    • JOURNAL, Hoover, Kevin D., Mark V., Siegler, 20 March 2008, Sound and Fury: McCloskey and Significance Testing in Economics, Journal of Economic Methodology, 15, 1, 1–37, 10.1080/13501780801913298, harv,,    • JOURNAL, McCloskey, Deirdre N., Stephen T., Ziliak, 20 March 2008, Signifying nothing: reply to Hoover and Siegler, Journal of Economic Methodology, 15, 1, 39–55, 10.1080/13501780801913413,, although critical commentary on papers in economics in prestigious journals such as the American Economic Review has declined precipitously in the past 40 years. This has been attributed to journals' incentives to maximize citations in order to rank higher on the Social Science Citation Index (SSCI).JOURNAL, Whaples, R., May 2006, The Costs of Critical Commentary in Economics Journals, Econ Journal Watch, 3, 2, 275–282,weblinkweblink 29 January 2008, In applied economics, input-output models employing linear programming methods are quite common. Large amounts of data are run through computer programs to analyse the impact of certain policies; IMPLAN is one well-known example.Experimental economics has promoted the use of scientifically controlled experiments. This has reduced the long-noted distinction of economics from natural sciences because it allows direct tests of what were previously taken as axioms.• ENCYCLOPEDIA, Bastable, C.F., The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, II, 241,weblink 10.1057/9780230226203.2512, The New Palgrave Dictionary of Economics, 2008, 9780333786765, Experimental methods in economics (i),    • ENCYCLOPEDIA, Vernon L. Smith, Smith, Vernon L., The New Palgrave: A Dictionary of Economics, first, John, Eatwell, Murray, Milgate, Peter, Newman, II, 241–242,weblink 10.1057/9780230226203.2513, The New Palgrave Dictionary of Economics, 2008, 9780333786765, Experimental methods in economics (ii), In some cases these have found that the axioms are not entirely correct; for example, the ultimatum game has revealed that people reject unequal offers.In behavioural economics, psychologist Daniel Kahneman won the Nobel Prize in economics in 2002 for his and Amos Tversky's empirical discovery of several cognitive biases and heuristics. Similar empirical testing occurs in neuroeconomics. Another example is the assumption of narrowly selfish preferences versus a model that tests for selfish, altruistic, and cooperative preferences.• JOURNAL, Fehr, Ernst, Urs, Fischbacher, 23 October 2003, The Nature of Human Altruism, Nature (journal), Nature, 425, 6960, 785–791, 10.1038/nature02043, 14574401,    • JOURNAL, Sigmund, Karl, Ernst, Fehr, Martin A., Nowak, January 2002, The Economics of Fair Play, Scientific American, 286, 1, 82–7, 11799620, 10.1038/scientificamerican0102-82, These techniques have led some to argue that economics is a "genuine science".JOURNAL, Lazear, Edward P., Economic Imperialism, 1 February 2000, 115, 1, 2586936, 99–146, Quarterly Journal of Economics, 10.1162/003355300554683,


The professionalization of economics, reflected in the growth of graduate programmes on the subject, has been described as "the main change in economics since around 1900".ENCYCLOPEDIA, Orley Ashenfelter, Orley, Ashenfelter, 2001, Economics: Overview, The Profession of Economics, International Encyclopedia of the Social & Behavioral Sciences, first, N.J., Smelser, P.B., Baltes, Pergamon, VI, 4159, 978-0-0804-3076-8, Most major universities and many colleges have a major, school, or department in which academic degrees are awarded in the subject, whether in the liberal arts, business, or for professional study.In the private sector, professional economists are employed as consultants and in industry, including banking and finance. Economists also work for various government departments and agencies, for example, the national treasury, central bank or bureau of statistics.There are dozens of prizes awarded to economists each year for outstanding intellectual contributions to the field, the most prominent of which is the Nobel Memorial Prize in Economic Sciences, though it is not a Nobel Prize.

See also

{{Wikipedia books|Economics}}






Further reading

  • Anderson, David A. (2019) Survey of Economics. New York: Worth.weblink{{ISBN|978-1-4292-5956-9}}
  • Grinin, L., Korotayev, A. and Tausch A. (2016) Economic Cycles, Crises, and the Global Periphery. Springer International Publishing, Heidelberg, New York, Dordrecht, London, {{ISBN|978-3-319-17780-9}};weblink
  • McCann, Charles Robert, Jr., 2003. The Elgar Dictionary of Economic Quotations, Edward Elgar. Preview.
  • BOOK, Jean Baptiste Say, A Treatise on Political Economy: Or The Production, Distribution, and Consumption of Wealth, one,weblink 1821, Wells and Lilly,
  • BOOK, Jean Baptiste Say, A Treatise on Political Economy; Or The Production, Distribution, and Consumption of Wealth, two,weblink 1821, Wells and Lilly,
  • BOOK, Tausch, Arno, Arno Tausch, The political algebra of global value change. General models and implications for the Muslim world. With Almas Heshmati and Hichem Karoui, Nova Science Publishers, New York, 2015, 1st, 978-1-62948-899-8,
  • {{librivox book | title=Economics}}

External links

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General information

Institutions and organizations

Study resources

  • BOOK, Anderson, David, Ray, Margaret, Krugman's Economics for the AP Course, 2019, BFW, New York, 978-1-319-11327-8, 3rd,weblink
  • BOOK, McConnell, Campbell R., 18th, 2009, Economics. Principles, Problems and Policies,weblink PDF contains full textbook, New York, McGraw-Hill, etal, 9780073375694, dead,weblink" title="">weblink 6 October 2016, dmy-all,
  • Economics at
  • b:Economics|Economics textbooks]] on b:Main Page|Wikibooks]]
  • MERLOT Learning Materials: Economics: US-based database of learning materials
  • Online Learning and Teaching Materials UK Economics Network's database of text, slides, glossaries and other resources
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