Economics

Economics (from the Greek пЯкпт [oikos], 'family, household, estate', and нпмпт [nomos], 'custom, law', hence "household management" and "management of the state") is a social science that typically studies the production, distribution, and consumption of goods and services. Since the early part of the 20th century, economics has focused largely on measurable variables, and employed both theoretical models and empirical analysis[1]. Economic logic is increasingly applied to any problem that involves choice under scarcity or determining economic value (such as politics, religion, pyschology, history and dating). A professional working in economics or having an academic degree in the subject is an economist.

The subject is broadly divided into two main branches: microeconomics, which deals with individual agents, such as households and businesses, and macroeconomics, which considers the economy as a whole. An alternate division of the subject distinguishes positive economics, which tries objectively to predict and explain economic phenomena, from normative economics, which recommends one choice over another--such recommendations often involve subjective value judgments.

The mainstream economic paradigm is a combination of neoclassical economics and Keynesian macroeconomics. Crucial assumptions of this paradigm include the idea that resources are scarce while wants are unlimited, which is sometimes characterized as the economic problem, and an understanding that the value of most goods can be represented in terms of their open-market price. Various schools of heterodox economics, for instance socialist economics,green economics and associative economics, seek to explain economic phenomena using different basic assumptions, for example by emphasising that economics is primarily concerned with exchanges of values, which may either be scarce, as in physical goods (deriving from land)or may be unlimited, as in creative goods (or services that derive from the intelligent use of capital).

Contents

1 Definitions of economics

1.1 Wealth definition

1.2 Welfare definition

1.3 Scarcity definition

2 Areas of study in economics

3 Economic assumptions

3.1 Supply and demand

3.2 Price

3.3 Scarcity

3.4 Marginalism

3.5 Value

4 Economic language and reasoning

5 Development of economic thought

6 Schools of economic thought

6.1 Modern 'mainstream' economics

6.2 Neoclassical economics

6.3 Post-Keynesian economics

6.4 New-Keynesian economics

6.5 Other alternatives

6.6 Eclectic Economists

7 Economics and other disciplines

Definitions of economics

Broadly speaking, economics is a social science, and its area of study is human activity involved in meeting needs and wants. However, beyond this there are a range of definitions, past and present, which have been applied - first to the term political economy and then to the modern term economics. John Maynard Keynes once remarked that "Economics is the science of thinking."{See Keynes, Moggridge1976 p.28.} Broadly, the history of the study moved from the study of "wealth" to "welfare" to the idea of studying trade-offs.

Wealth definition

The earliest definitions of political economy were simple, elegant statements defining it as the study of wealth. The first scientific appraoch to the subject was inaugurated by Aristotle, whose influence is still recognised today by The Austrian School, among others. Adam Smith, author of the seminal work The Wealth of Nations and regarded by some as the "father of modern economics," defines economics simply as "The science of wealth."[2] Smith offered another definition, "The Science relating to the laws of production, distribution and exchange."[2] Wealth was defined as the specialization of labour which allowed a nation to produce more with its supply of labour and resources. This definition divided Smith and Hume from previous definitions which defined wealth as gold. Hume argued that gold without increased activity simply serves to raise prices.[citation needed]John Stuart Mill defined economics as "The practical science of production and distribution of wealth";[citation needed] this definition was adopted by the Concise Oxford English Dictionary.[3] even though it does not include the vital role of consumption. For Mill, wealth is defined as the stock of useful things.[citation needed]

Definitions in terms of wealth emphasize production and consumption, and do not deal with the economic activities of those not significantly involved in these two processes (for example, retired people, beggars). For economists of this period, non-productive activity is a cost on society. This interpretation gave economics a narrow focus that was rejected by many as placing wealth in the forefront and man in the background; John Ruskin referred to political economy as a "Bastard science, the science of getting riches."[citation needed]

Welfare definition

Later definitions evolved to include human activity, advocating a shift toward the modern view of economics as primarily a study of man and of human welfare, not of money. Alfred Marshall in his 1890 book Principles of Economics wrote, "Political Economy or Economics is a study of mankind in the ordinary business of Life; it examines the part of the individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being."[4]

The welfare definition was still criticized as too narrowly materialistic. It ignores, for example, the non-material aspects of the services of a doctor or a dancer. A theory of wages which ignored all those sums paid for immaterial services was incomplete. Welfare could not

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