Economics 1
Economics From Wikipedia, the free encyclopedia 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). "[1] Modern economics developed out of the broader field of political economy in the late 19th century, owing to a desire to use an empirical approach more akin to the physical sciences. [2] A definition that captures much of modern economics is that of Lionel Robbins in a 1932 essay: "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. "[3] Scarcity 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 choices as they are affected by incentives and resources.
Areas of economics may be divided or classified into various types, including: * microeconomics and macroeconomics * positive economics ("what is") and normative economics ("what ought to be") * mainstream economics and heterodox economics * fields and broader categories within economics. One of the uses of economics is to explain how economies, as economic systems, work and what the relations are between economic players (agents) in the larger society. Methods of economic analysis have been increasingly applied to fields that involve people (officials included) making choices in a social context, such as crime,[4] education,[5] the family, health, law, politics, religion,[6] social institutions, and war. [7] Contents [hide] * 1 Politics, economics and culture * 2 Basic concepts o 2.1 Production possibilities, opportunity cost, and efficiency o 2.2 Specialization, division of labour, and gains from trade o 2.3 Money o 2.4 Supply and demand, prices and quantities * 3 Economic reasoning * 4 Areas and classifications in economics o 4.1 Analysis of the economy + 4.1.1 Microeconomics + 4.1.2 Macroeconomics o 4.2 Mathematical and quantitative methods + 4.2.1 Mathematical economics + 4.2.2 Econometrics + 4.2.3 National accounting o 4.3 Selected fields + 4.3.1 Agricultural economics + 4.3.2 Development and growth economics + 4.3.3 Economic systems + 4.3.4 Environmental economics + 4.3.5 Financial economics + 4.3.6 Game theory + 4.3.7 Industrial organization + 4.3.8 Information economics + 4.3.9 International economics + 4.3.10 Labour economics + 4.3.11 Law and economics + 4.3.12 Managerial economics + 4.3.13 Public finance + 4.3.14 Welfare economics * 5 History and schools of economics o 5.1 Classical economics o 5.2 Marxist economics o 5.3 Neoclassical economics o 5.4 Keynesian economics o 5.5 Other schools and approaches o 5.6 Historic definitions of economics * 6 Criticism o 6.1 Economics and politics + 6.1.1 Ethics and economics + 6.1.2 Effect on society o 6.2 Preoccupation with mathematics * 7 Economics in practice * 8 See also * 9 Notes * 10 External links o 10.1 General information o 10.2 Institutions and organizations o 10.3 Study resources Politics, economics and culture Although formalized (written) ideas about the market place and money have a history that dates to around the Babylonian law texts time, and Mesopotamian period, in the history of economic thought, economics in its modern sense, as termed and phrased, is conventionally dated from the publication of Adam Smith's The Wealth of Nations in 1776. [8][9] There Smith presents the subject in this way: 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. [10] Smith referred to the subject as 'political economy', but that term was gradually replaced in general usage by 'economics' after 1870. [11] The Physiocrats were a group of economists who believed that the wealth of nations was derived solely from the value of land agriculture or land development. [12] Their theories were most popular during the second half of the 18th century. This economic school immediately preceded the first modern school, classical economics, which began with Smith's The Wealth of Nations. In The Wealth of Nations, 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 Smiths 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. [13] Market failure is the condition where the allocation of goods and services by a free market is not efficient. Market failure can be viewed as a scenario in which individuals' pursuit of self-interest leads to bad results for society as a whole. [14] The first known use of the term by economists was in 1958,[15] but the concept has been traced back to the Victorian philosopher Henry Sidgwick. [16] Basic concepts Production possibilities, opportunity cost, and efficiency Main articles: Production-possibility frontier, Opportunity cost, and Economic efficiency Common problems among different types of economies include: * what goods to produce and in what quantities (consumption or investment, private goods or public goods, meat or potatoes, etc.) * how to produce them (coal or nuclear power, how much and what kind of machinery, who farms or teaches, etc.) * for whom to produce them, reflecting the distribution of income from output. [17] An analytical tool for addressing these problems is the production-possibility frontier (PPF). In the simplest case an economy can produce just two goods. Then the PPF is a table or graph (as below) that shows the different quantities of the two goods. Technology and an endowment of productive inputs (such as land, capital, and prospective labour) are taken as given, which limits feasible total output. Production Possibility Curve Point A in the diagram for example, shows that FA of food and CA of computers can be produced when production is run efficiently. So can FB of food and CB of computers (point B). Each point on the curve shows a maximal potential total output for the economy, which is the maximum 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. [18] 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 an opportunity cost. Opportunity cost has been described as expressing "the basic relationship between scarcity and choice. "[19] Along the PPF, scarcity means 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 can also be described as the choice of the increased output being 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 U, 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. An example of such inefficiency might be from high unemployment during a business-cycle recession. Being on the curve might still not fully satisfy allocative efficiency if it did not produce a mix of goods that consumers preferred. [20] Consistent with the common economic problems listed above, much applied economics in public policy is concerned with determining how the efficiency of an economy can be improved. [21] 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. "[22]
