Economics

Economics (from the Greek οίκος , 'house', and νομος , 'rule', hence "household management") is a social science that studies the production, distribution, trade and consumption of goods and services. Economics is said to be positive when it tries to objectively predict and explain consequences of choices, given a set of assumptions or a set of observations. The choice of which assumptions to make in building a model as well as which observations to highlight, however, is a normative choice. Economics is also said to be normative when it recommends one choice over another, or when a subjective value judgement is made.

Schools of economic thought

There have been different and competing schools of economic thought pertaining to capitalism from the late 18th century to the early day. Important schools of thought are Mercantilism, Kameralism, Physiocracy, Manchester school, Protectionism, Fiscalism, Monetarism, Classical economics, Marxian economics, Keynesian economics, Post-Keynesian economics, Neoclassical economics, Austrian School, Dependency theory, World systems theory, and New classical economics.

Related Topics:
Mercantilism - Kameralism - Physiocracy - Manchester school - Protectionism - Fiscalism - Monetarism - Classical economics - Marxian economics - Keynesian economics - Post-Keynesian economics - Neoclassical economics - Austrian School - Dependency theory - World systems theory - New classical economics

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Neo-classical economics

Neo-classical economics begins with the premise that resources are scarce and that it is necessary to choose between competing alternatives. That is, economics deals with tradeoffs. With scarcity, choosing one alternative implies forgoing another alternative—the opportunity cost. The opportunity cost creates an implicit price relationship between competing alternatives. In addition, in both market oriented and planned economies, scarcity is often explicitly quantified by price relationships.

Related Topics:
Tradeoffs - Opportunity cost - Price

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Understanding choices by individuals and groups is central. Economists believe that incentives and desires play an important role in shaping decision making. Concepts from the Utilitarian school of philosophy are used as analytical concepts within economics, though economists appreciate that society may not adopt utilitarian objectives. One example of this is the idea of a utility function, which is assumed to represent how economic agents rank the choices given to them. A given economic alternative can be thought of as a vector where the entries are answers to questions like "How many eggs should I buy?", "How many hours should I spend with my kids?", and "How much money should I set aside for later?". Then the utility function ranks these from best to worst, and the agent gradually learns to choose the best-ranked choice in the feasible set of his alternatives.

Related Topics:
Decision making - Utilitarian - Philosophy - Utility function - Vector - Feasible set

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