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trading floor. Financial decisions can be one of those many economic choices people make.]] Economics is the Social Science that studies the production, Distribution , and consumption of Goods And Services . The term ''economics'' comes from the Greek for ''oikos'' (house) and ''nomos'' (custom or law), hence "rules of the house(hold)." A definition that captures much of modern economics is that of means that available Resources are insufficient to satisfy all wants and needs. Absent scarcity and alternative uses of available resources, there is no Economic Problem . The subject thus defined involves the study of Choice s as they are affected by incentives and resources. Areas of economics may be divided or classified in various ways, including:
One of the uses of economics is to explain how , and war {Link without Title} . IN THE BEGINNING , generally regarded as the Father of Economics, author of ''An Inquiry into the Nature and Causes of the Wealth of Nations'', commonly known as '' The Wealth Of Nations ''.]] Although discussions about production and distribution have a Long History , economics in its modern sense is conventionally dated from the publication of Adam Smith 's '' The Wealth Of Nations '' in 1776. In this work Smith defines the subject in practical terms: :Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to supply a plentiful revenue or product for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign. Smith referred to the subject as ' Political Economy ', but that term was gradually replaced in general usage by 'economics' after 1870. AREAS OF ECONOMICS Areas of economics may be classified in various ways, but an Economy is usually analyzed by use of ''microeconomics'' or ''macroeconomics''. Microeconomics See Also: Microeconomics Microeconomics examines the economic behavior of Agents (including businesses and households) and their interactions through individual markets, given scarcity and Government Regulation . Within microeconomics, General Equilibrium theory aggregates across ''all'' markets, including their movements and interactions toward equilibrium. Macroeconomics See Also: Macroeconomics Macroeconomics examines the economy as a whole "top down" to explain broad aggregates and their interactions. Such aggregates include of national income within a country and across countries. Related fields, other distinctions, and classifications Recent developments closer to microeconomics include , and Institutional Economics . Another division of the subject distinguishes two types of economics. Positive Economics ("what is") seeks to explain economic phenomena or behavior. Normative Economics ("what ought to be," often as to public policy) prioritizes choices and actions by some set of criteria; such priorities reflect value judgments, including selection of the criteria. Another distinction is between ''mainstream economics'' and ''heterodox economics''. One broad characterization describes Mainstream Economics as dealing with the "rationality-individualism-equilibrium nexus" and Heterodox Economics as defined by a "institutions-history-social structure nexus." The '' (1987).2 Mathematical and quantitative methods Economics as an academic subject often uses geometric methods, in addition to literary methods. Other general mathematical and quantitative methods are also often used for rigorous analysis of the economy or areas within economics. Such methods include the following. Mathematical economics See Also: Mathematical economics Mathematical economics refers to application of mathematical methods to represent economic theory or analyze '', v. 3, pp. 401-03. For example, Paul Samuelson 's book '' Foundations Of Economic Analysis '' (1947) identifies a common mathematical structure across multiple fields in the subject. Econometrics See Also: Econometrics Econometrics applies mathematical and , v. 2, p. 8. National accounting See Also: National accounts National accounting is a method for summarizing economic activity of a nation. The National Accounts are Double-entry Accounting systems that provide detailed underlying measures of such information. National accounting includes measurement of National Income And Product . This allows tracking the performance of an economy and its components through Business Cycles or over longer periods. It also includes measurement of the Capital Stock and Wealth of a nation, and International Capital Flows . Ruggles, Nancy D. (1987). "social accounting". 3 Selected fields Development economics See Also: Development economics Development economics examines the economic aspects of the development process in '', v. 1, pp. 818-26. Environmental economics See Also: Environmental economics Environmental economics is concerned with issues related to degradation, enhancement, or preservation of the (2004). '' Economics '', ch. 18, "Protecting the Environment." McGraw-Hill. ISBN 0-07-287205-5. Financial economics See Also: Financial economics Financial economics, often simply referred to as Finance , is concerned with the allocation of financial resources in an uncertain (or Risky ) environment. Thus, its focus is on the operation of Financial Market s, the pricing of Financial Instrument s, and the Financial Structure of companies. Ross, Stephen A. (1987). "finance," ''The New Palgrave: A Dictionary of Economics'', v. 2, pp. 322-26. Game theory See Also: Game theory Game theory is a branch of '', v. 2, pp. 460-82. Industrial organization See Also: Industrial organization Industrial organization studies the strategic behavior of firms, the structure of markets and their interactions. The common market structures studied include Perfect Competition , Monopolistic Competition , various forms of Oligopoly , and Monopoly .Schmalensee, Richard (1987). "industrial organization," ''The New Palgrave: A Dictionary of Economics'', v. 2, pp. 803-808. Information economics See Also: Information economics Information economics examines how information (or a lack of it) affects economic decision-making. An important focus is the concept of Information Asymmetry , where one party has more or better information than the other. The existence of information asymmetry gives rise to problems such as Moral Hazard , and Adverse Selection , studied in Contract Theory . The economics of information has relevance in many fields, including Finance , Insurance , Contract Law , and decision-making under risk and uncertainty. International economics See Also: International trade International finance International trade is the exchange of goods and services across international boundaries or territories. International Finance examines the flow of Capital across international borders, and the role of Exchange Rate s in facilitating this trade. The trade of goods, services and capital between countries is a major impetus behind and effect of Globalization . Labour economics See Also: Labour economics Labour economics seeks to understand the functioning of the Market and dynamics for Labour . Labour Market s function through the interaction of workers and employers. Labour economics looks at the suppliers of labour services (workers), the demanders of labour services (employers), and attempts to understand the resulting patterns of wages and other labour income and of employment and unemployment, Practical uses include assisting the formulation of Full Employment of policies. Freeman, R.B. (1987). "labour economics," ''The New Palgrave: A Dictionary of Economics'', v. 3, pp. 72-76. Law and economics See Also: Law and 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 laws, to assess which legal rules are (1972). ''Economic Analysis of Law''. Aspen, 7th ed., 2007) ISBN 978-0-735-56354-4. A seminal article by Ronald Coase published in 1961 suggested that well-defined property rights could overcome the problems of Externalities . Coase, Ronald , "The Problem of Social Cost", '' The Journal Of Law And Economics '' Vol.3, No.1 (1960). This issue was actually published in 1961. Public finance See Also: Public finance 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 programs, effects on Economic Efficiency and Income Distribution of different kinds of spending and taxes, and fiscal politics. The latter describes public-sector behavior analogously to microeconomics, involving interactions of self-interested voters, politicians, and bureaucrats. Musgrave, R.A. (1987). "public finance," ''The New Palgrave: A Dictionary of Economics'', v. 3, pp. 1055-60. Welfare economics See Also: Welfare economics Welfare economics is a 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.Feldman, Allan M. ((1987). "welfare economics," ''The New Palgrave: A Dictionary of Economics'', v. 4, pp. 889-95. ECONOMIC CONCEPTS Supply and demand See Also: Supply and demand model describes how prices vary as a result of a balance between product availability and demand. The graph depicts an increase (that is, right-shift) in demand from D1 to D2 along with the consequent increase in price and quantity required to reach a new equilibrium point on the supply curve (S).]] The theory of demand and supply is an organizing principle to explain prices and quantities of goods sold and changes thereof in a Market economy. In Microeconomic Theory , it refers to price and output determination in a Perfectly Competitive Market . This has served as a building block for modeling other market structures and for other theoretical approaches. For a given market of a Commodity , ''demand'' shows the quantity that all prospective buyers would be prepared to purchase at each unit price of the good. Demand is often represented using a table or a graph relating price and quantity demanded (see boxed 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 as the " Constraint " on demand). Here, ' Utility ' refers to the (hypothesized) preference relation for individual consumers. Utility and income are then used to model hypothesized properties about the effect of a price change on the quantity demanded. The law of demand states that, in general, price and quantity demanded in a given market are inversely related. In other words, the higher the price of a product, the less of it people would be able and willing buy of it (other things Unchanged ). As the price of a commodity rises, overall Purchasing Power decreases (the ''income effect'') and consumers move toward relatively less expensive goods (the ''substitution effect''). Other factors can also affect demand; for example an increase in income will ''shift'' the demand curve outward relative to the origin, as in the figure. ''Supply'' is the relation between the price of a good and the quantity available for sale from suppliers (such as producers) at that price. Supply is often represented using a table or graph relating price and quantity ''supplied''. Producers are hypothesized to be profit-maximizers, meaning that they attempt to produce the amount of goods that will bring them the highest profit. Supply is typically represented as a directly proportional relation between price and quantity supplied (other things unchanged). In other words, the higher the price at which the good can be sold, the more of it producers will supply. The higher price makes it profitable to increase production. At a price below equilibrium, there is a shortage of quantity supplied compared to quantity demanded. This pulls 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 a given supply and demand curve, price and quantity will stabilize at the price that makes quantity supplied equal to quantity demanded. This is at the intersection of the two curves in the graph above, Market Equilibrium . For a given quantity of a good, the price point on the demand curve indicates the ''value'', or Marginal Utility Baumol, William J. (2007). "Economic Theory" (Measurement and ordinal utility). ''The New Encyclopaedia Britannica'', v. 17, p. 719. to consumers for that unit of output. It measures what the consumer would be prepared to pay for the corresponding unit of the good. The price 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 cost and value at equilibrium.4 Demand and supply can also be used to model the Distribution Of Income to the Factors Of Production , including labour and capital, through ''factor markets''. In a labour market for example, the quantity of labour employed and the price of labour (the wage rate) are modeled as set by the Demand For Labour (from business firms etc. for production) and supply of labour (from workers). Demand and supply are used to explain the behavior of perfectly competitive markets, but their usefulness as a standard of performance extends to any type of market. Demand and supply can also be generalized to explain Macroeconomic variables in a Market Economy , for example, Quantity Of Total Output and the general Price Level . Prices and quantities See Also: Price Prices and quantities s are determined by the relative supply and demand of different Currencies — an important issue in International Trade ]] In supply-and-demand analysis, ''price'', the going rate of exchange for a good, coordinates production and consumption quantities. Price and quantity have been described as the most directly observable characteristics of a good produced for the market.Brody, A. (1987). ""prices and quantities," ''The New Palgrave: A Dictionary of Economics'', v. 3, p. 957. Supply, demand, and market equilibrium are theoretical constructs linking price and quantity. But tracing the effects of factors predicted to change supply and demand -- and through them, price and quantity -- is a standard exercise in applied Microeconomics and Macroeconomics . Economic theory can specify under what circumstances price demonstrably serves as an ''efficient'' communication device to regulate quantity.Jordan, J.S. (1982). "The Competitive Allocation Process Is Informationally Efficient Uniquely." ''Journal of Economic Theory'', 28(1), p. 1-18. A real-world counterpart might attempt to measure how much variables that increase supply or demand change price and quantity. 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. 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 . Another area of economics considers whether markets adequately take account of all social costs and benefits. An Externality is said to occur where there are significant social costs or benefits of production or consumption 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. Laffont, J.J. (1987). "externalities,"," ''The New Palgrave: A Dictionary of Economics'', v. 2, p. 263-65. Marginalism See Also: Marginalism Marginalist Economic Theory , such as above, describes consumers as attempting to reach a most-preferred position, subject to constraints, including Income and Wealth . It describes producers as attempting to maximize profits subject to their own constraints (including demand for goods produced, technology, and the price of inputs). Thus, for a consumer, at the point where Marginal Utility net of price reaches zero, further increases in consumption of that good stop. Analogously, a producer compares Marginal Revenue against Marginal Cost . At the point where the marginal profit reaches zero, further increaaes in production of a good stop. For movement to equilibrium and for changes in equilibrium, behavior also changes "at the margin" -- usually more-or-less of something, rather than all-or-nothing. The constraints on consumers and producers represent a hypothesized Scarcity of goods compared to finite resources available to produce them. Those resources describe a menu of Production Possibilities . For consumers or other agents, production possibilities and scarcity imply that, if resources are fully utilized, there are Tradeoffs , whether of radishes for carrots, leisure for money income, Private Goods for public goods, or present consumption for future consumption. In this way, marginalism is used as a tool for modeling not only individual agents but economic systems in relation to variables that affect them. ECONOMIC REASONING Economics as a contemporary discipline relies on rigorous styles of argument. Objectives include formulating theories that are simpler, more fruitful, and more reliable in their explanatory power than other theories. Milton Friedman (1953), '' Essays In Positive Economics '', ch. 1, University of Chicago Press. Often analysis begins with a simple Model to isolate relations of a variable to be explained. Complications may be impounded in a '' Ceteris Paribus '' ("other things equal") assumption. For example, the Quantity Theory Of Money hypothesizes a positive relationship between the Price Level and the Money Supply , ''ceteris paribus''. The theory can be tested using Economic Data , such as a Price Index for GDP and a measure of the money supply, say currency plus bank deposits. Econometric methods can allow for the influence of competing explanations and attempt to adjust for noise from other variables in the absence of a Controlled Experiment . Expositions of reasoning within economic models often use two-dimensional graphs to represent theoretical relationships. At a higher level of generality, Paul Samuelson 's treatise '' Foundations Of Economic Analysis '' (1947) showed how to apply mathematical methods to examine the class of assertions called ''operationally meaningful theorems'' in economics, which are Theorem s that can conceivably be refuted by Empirical data.5 Such assertions permit testing of a theory. Some reject mathematical economics. Thus, in the Austrian School of economics it is argued that anything beyond simple logic is likely unnecessary and inappropriate for economic analysis. Still, much of modern economics employs the Hypothetico-deductive Method to explain real-world phenomena. Towards this end, economics has undergone a massive formalization of its concepts and methods. This has included extension of microeconomic methods to analysis of seemingly non-economic areas, sometimes called '' Economic Imperialism ''.Lazear, Edward P. (2000). "Economic Imperialism," ''The Quarterly Journal of Economics'', 115(1), p p. 99 -146. HISTORY AND SCHOOLS OF ECONOMICS See Also: History of economics Schools of economics Economic thought may be roughly divided into three phases: ''premodern'' ( in the late 18th Century ). Systematic economic theory has been developed mainly since the birth of the modern era. Joseph Schumpeter specifically credits the development of the scientific study of economics to the Late Scholastics , particularly those of 15th and 16th century Spain (see his ''History of Economic Analysis''). Classical economics See Also: Classical economics Publication of , v. 1, pp. 434-35 Blaug notes less widely used datings and uses of 'classical economics', including those of Marx and Keynes . Value theory was important in classical theory. Smith wrote that the "real price of every thing ... is the toil and trouble of acquiring it" as influenced by its scarcity. Smith maintained that, with rent and profit, other costs besides wages also enter the price of a commodity.Smith, Adam (1776). The Wealth of Nations , 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 markets to move to long-run equilibrium. Marxist economics See Also: Marxian economics Marxist (later, Marxian) economics descends from classical economics. It derives from the work of Karl Marx . The first volume of Marx's major work, ''Capital'', was published in German in 1867. In it, Marx focused on the Labour Theory Of Value and what he considered to be the exploitation of labour by capital. Thus, the labour theory of value, rather than simply a theory of price, was a method for measuring the exploitation of labour in a capitalist society, Roemer, J.E. (1987). "Marxian Value Analysis". 8, Mandel, Ernest (1987). "Marx, Karl Heinrich". 9 although concealed by appearances of "vulgar" political economy.Vianello, Fernando (1987). "labour theory of value," ''The New Palgrave: A Dictionary of Economics'', v. 3, pp. 111-12.Baradwaj Krishna (1987). "vulgar economy," ''The New Palgrave: A Dictionary of Economics'', v. 3, p. 831. Neoclassical economics See Also: Neoclassical economics A body of theory later termed 'neoclassical economics' or ' Marginalist Economics ' formed from about 1870 to 1910. The term 'economics' was popularized by neoclassical economists such as Alfred Marshall as a substitute for the earlier term ' Political Economy '. Neoclassical economics sytematized Supply And Demand as joint determinants of market price and quantity produced. It dispensed with the Labour Theory Of Value inherited from classical econonomics in favor of a Marginal Utility theory of value on the demand side and a more general theory of costs on the supply side.Campos, Antonietta (1987). "marginalist economics". 10 In the 20th century and beyond, neoclassical economics is reflected in an early and lasting ). and in the Supply And Demand model of markets. It 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. Neoclassical economics is often referred as ''orthodox economics'' whether by its critics or sympathizers. The notion of Opportunity Cost is a refinment of neoclassical analyis. It expresses an implied relationship between competing alternatives. Such costs, considered as prices in a market economy are used for analysis of Economic Efficiency or for predicting responses to disturbances in a market. In a Planned Economy comparable Shadow Price relations must be satisfied for the efficient use of resources, as first demonstrated out by the Italian economist Enrico Barone . Modern mainstream economics builds on neoclassical economics but with many refinements that either supplement or generalize earlier analysis, such as Game Theory , analysis of Market Failure and Imperfect Competition , and the Neoclassical Model of Economic Growth for analyzing long-run variables affecting National Income . Keynesian economics See Also: Keynesian economics Post-Keynesian economics This school developed from the work of John Maynard Keynes , particularly his '' The General Theory Of Employment, Interest And Money '' (1936)11 It focuses on economy in the short run when prices are relatively rigid but employment slump because of a fall in Effective Demand . It has two successors. Post-Keynesian Economics also concentrate 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 . New-Keynesian Economics is also associated with developments in the Keynesian fashion. Within this group researchers tend to share with other Neoclassical economists the emphasis on models employing micro foundations and optimizing behavior but with a narrower focus on standard Keynesian themes such as price and wage rigidity. These are usually made to be endogenous features of these models, rather than simply assumed as in older style Keynesian ones. Other schools and approaches Other well-known schools or trends of thought referring to a particular style of economics practiced at and disseminated from well-defined groups of academicians that have become known worldwide, include the Austrian School , Chicago School , the Freiburg School , the School Of Lausanne and the Stockholm School . 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 . New alternative developments include Evolutionary Economics , Dependency Theory , and World Systems Theory . Historic definitions of economics This section extends the discussion of the definitions of Economics at the beginning of the article. Wealth definition The earliest definitions of political economy were simple, elegant statements defining it as the study of wealth. The first scientific approach to the subject was inaugurated by ; Copley, Stephen and Edgar, Andrew, editors (1998). "Of the Balance of Trade" 12 John Stuart Mill defined economics as "The practical science of production and distribution of wealth"; this definition was adopted by the '' Concise Oxford English Dictionary '' even though it does not include the vital role of consumption. For Mill, wealth is defined as the stock of useful things.13 Definitions in terms of wealth emphasize production and consumption. The accounting measures usually used measure the pay received for work and the price paid for goods, and do not deal with the economic activities of those not significantly involved in buying and selling (for example, retired people, beggars, peasants). For economists of this period, they are considered non-productive, and non-productive activity is considered a kind of 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" Ruskin, John (1860). 14 Reprinted as ''Unto This Last'', 1862 and "the science of getting rich." Ruskin, John (1860). 15 Reprinted as ''Unto This Last'', 1862 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 that 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."16 ECONOMIC THEORY CRITICISMS Is economics a science? One of the marks of a and Consumer Behavior , focused on experimentation using human subjects; and the sub-field of Econometrics , focused on testing hypotheses when data are not generated via controlled experimentation. However, in a way similar to what happens in other Social Sciences , it may be difficult for economists to conduct certain formal experiments due to moral and practical issues involved with human subjects. The status of social sciences as an empirical , have asserted that no empirical hypothesis, proposition, or theory can be considered scientific if no observation could be made which might contradict it, insisting on strict Falsifiability . Critics allege that economics cannot always achieve Popperian falsifiability, but economists point to many examples of controlled experiments that do exactly this. The Economics of Fair Play. Karl Sigmund, Ernst Fehr and Martin A. Nowak in Scientific American, Vol. 286, No. 1, pages 82-87; January 2002The Nature of Human Altruism. Ernst Fehr and Urs Fischbacher in Nature, Vol. 425, pages 785-791; October 23, 2003.Andrew Oswald, ‘‘Happiness and Economic Performance,’’ Economic Journal 107 (1997): p. 1815–1831. While economics has produced theories that correlate with observations of behavior in society, economics yields no natural laws or universal constants due to its reliance on non-physical arguments. This has led some critics to argue economics is not a science.17 In general, economists reply that while this aspect may present serious difficulties, they do in fact test their hypotheses using Statistical Methods such as Econometrics and data generated in the real world.18 Roth is the Gund Professor of Economics and Business Administration, Harvard Economics Department and Harvard Business School The field of Experimental Economics has seen efforts to test at least some predictions of economic theories in a simulated laboratory setting – an endeavor which earned Vernon Smith and Daniel Kahneman the Bank Of Sweden Prize In Economic Sciences In Memory Of Alfred Nobel in 2002 . Although the conventional way of connecting an Economic Model with the world is through Econometric analysis, economist and professor Deirdre McCloskey , through what is known as the McCloskey Critique , cites many examples in which professors of Econometrics were able to use the same data to both prove and disprove the applicability of a model's conclusions. She argues the vast efforts expended by economists on analytical equations is essentially wasted effort. Econometricians have replied that this would be an objection to any science, and not only to economics. Critics of McCloskey's critique reply by saying, among other things, that she ignores examples where economic analysis is conclusive and that her claims are illogical. CORRESPONDENCE - Econ Journal Watch, Volume 1, Number 3, December 2004, pp 539-545 Criticism of assumptions Certain models used by economists within economics have been criticized, sometimes by other economists, for their reliance on unrealistic, unobservable, or unverifiable assumptions. One response to this criticism has been that the unrealistic assumptions result from abstraction from unimportant details, and that such abstraction is necessary in a complex real world, which means that rather than unrealistic assumptions compromising the epistemic worth of economics, such assumptions are essential for economic knowledge. One study has termed this explanation the "abstractionist defense" and concluded that that this "abstractionist defense" does not invalidate the criticism of the unrealistic assumptions.19 However, it is important to note that while one school does have a majority in the field, there is far from a consensus on all economic issues and multiple alternative fields claim to have more empirically-justified insights. Assumptions and observations Many criticisms of economics revolve around the belief that the fundamental claims of economics are unquestioned assumption without empirical evidence. Many economists reply giving examples of concepts that used to be considered "axioms" in economics and which have turned out to be consistent with empirical observation (see three examples below), however agreeing that these observations reveal that the original assumption was probably oversimplified. A few examples of such concepts that according to many economists have evolved from "assumptions" to empirically-based are:
(1997): p. 1815–1831.
A common defense of the above axioms was that they made the problem tractable. However, after specific details of this have been observed through economics research in a variety of controlled experiments, the original assumptions have been further refined and are no longer technically "axioms" in Mainstream Economics . Criticism of contradictions Economics is a field of study with Various Schools And Currents Of Thought . As a result, there exists a considerable distribution of opinions, approaches and theories. Some of these reach opposite conclusions or, due to the differences in underlying assumptions, contradict each other.20 Accessed on 2007-03-17 .21 McCloskey is Distinguished Professor of Economics, History, English, and Communication at the University Of Illinois At Chicago .McCloskey, D. N. (1985) '' The Rhetoric of Economics '' (Madison, University of Wisconsin Press). Criticisms of welfare and scarcity definitions of economics The definition of economics in terms of material being is 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 be quantitatively measured, because the Marginal significance of money differs from rich to the poor (that is, $100 is relatively more important to the well-being of a poor person than to that of a wealthy person). Moreover, the activities of production and distribution of goods such as alcohol and tobacco may not be conducive to human welfare, but these scarce Goods do satisfy innate human wants and desires. Marxist economics still focuses on a welfare definition. In addition, several critiques of mainstream economics begin from the argument that current economic practice does not adequately measure welfare, but only monetized activity, which is an inadequate approximation of welfare. The definition of economics in terms of Scarcity suggests that resources are in finite supply while wants and needs are infinite. People therefore have to make choices. Scarcity too has its critics. It is most amenable to those who consider economics a pure science, but others object that it reduces economics merely to a valuation theory. It ignores how values are fixed, prices are determined and national income is generated. It also ignores unemployment and other problems arising due to abundance. This definition cannot apply to such Keynesian concerns as cyclical instability, Full Employment , and Economic Growth . The focus on scarcity continues to dominate Neoclassical Economics , which, in turn, predominates in most academic economics departments. It has been criticized in recent years from a variety of quarters, including Institutional Economics and Evolutionary Economics and Surplus Economics . Criticism in other topics Criticism on several topics in economics can be found elsewhere, in both general and specialized literature. See, for example: General Equilibrium , Pareto Efficiency , Marginalism , Behavioral Finance , Behavioral Economics , Feminist Economics , Keynesian Economics , Monetarism , Neo-classical Economics , Endogenous Growth Theory , Comparative Advantage , Kuznets Curve , Laffer Curve , Economic Sociology , Agent-based Computational Economics , Et Al. . Economics and politics Some economists (ex. J.S.Mill, Leon Walras) have maintained that the production of wealth should not be tied to its distribution. The former is in the field of "applied economics" while the latter belongs to "social economics" and is largely a matter of (power)politics. ''The Origin of Economic Ideas'', Guy Routh (1989) Economics per se, as a social science, do not stand on the political acts of any government or other decision-making organization, however, many or the Cold War era debate of Capitalism vs. Communism , as issues of economics. Although economics makes no such value claims, this may be one of the reasons why economics could be perceived as not being based on empirical observation and testing of hypothesis. As a social science, economics tries to focus on the observable consequences and efficiencies of different economic systems without necessarily making any value judgments about such systems, for example, examine the economics of authoritarian systems, egalitarian systems, or even a caste system without making judgments about the morality of any of them. Ethics and economics The relationship between economics and Ethics is complex. Many economists consider normative choices and value judgments, like what needs or wants, or what is good for society, to be political or personal questions outside the scope of economics. Once a person or government has established a set of goals, however, economics can provide insight as to how they might best be achieved. Others see the influence of economic ideas, such as those underlying modern Capitalism , to promote a certain system of values with which they may or may not agree. (See, for example, Consumerism and Buy Nothing Day .) According to some thinkers, a theory of economics is also, or implies also, a theory of Moral Reasoning .E.F.Schumacher: Small is Beautiful, Economics as if People matter. The premise of Ethical Consumerism is that one should take into account ethical and environmental concerns, in addition to financial and traditional economic considerations, when making buying decisions. On the other hand, the rational allocation of limited resources toward public welfare and safety is also an area of economics. Some have pointed out that not studying the best ways to allocate resources toward goals like health and safety, the environment, justice, or disaster assistance is a sort of willful ignorance that results in less public welfare or even increased suffering.Douglas Hubbard, "How to Measure Anything: Finding the Value of Intangibles in Business", John Wiley & Sons, 2007. In this sense, it would be unethical not to assess the economics of such issues. In fact, federal agencies in the United States routinely conduct economic analysis studies toward that end. Effect on society Some would say that Market Form s and other means of distribution of scarce goods, suggested by economics, affect not just their "desires and wants" but also "needs" and "habits". Much of so-called economic "choice" is considered involuntary, certainly given by social Conditioning because people have come to expect a certain Quality Of Life . This leads to one of the most hotly debated areas in economic policy, namely, the effect and efficacy of welfare policies. Libertarians view this as a failure to respect economic reasoning. They argue that redistribution of wealth is morally and economically wrong. Socialists view it as a failure of economics to respect society. They argue that disparities of wealth should not have been allowed in the first place. This led to both 19th century Labour Economics and 20th century Welfare Economics before being subsumed into Human Development Theory . The older term for economics, '' Political Economy '', is still often used ''instead of'' "economics", especially by certain economists such as Marxists . The use of this term often signals a basic disagreement with the terminology or paradigm of market economics. Political economy explicitly brings social political considerations into economic analysis and is therefore openly Normative , although this can be said of many economic recommendations as well, despite claims to being Positive . Some mainstream universities (many in the United Kingdom ) have a "political economy" department rather than an "economics" department. Marxist economics generally denies the trade-off of time for money. In the Marxist view, concentrated control over the means of production is the basis for the allocation of resources among classes. Scarcity of any particular physical resource is subsidiary to the central question of power relationships embedded in the means of production. SEE ALSO ;Related topics
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