Economics

For other uses, seeEconomics (disambiguation).

Economics(/ˌɛkəˈnɒmɪks,ˌiːkə-/)is asocial sciencethat studies theproduction,distribution,andconsumptionofgoods and services.

Economics focuses on the behaviour and interactions ofeconomic agentsand howeconomieswork.Microeconomicsanalyses what is viewed as basic elements withineconomies,including individual agents andmarkets,their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers.Macroeconomicsanalyses economies as systems where production, distribution, consumption,savings,andinvestment expenditureinteract, and factors affecting it:factors of production,such aslabour,capital,land,andenterprise,inflation,economic growth,andpublic policiesthat have impact onthese elements.It also seeks toanalyse and describe the global economy.

Other broad distinctions within economics include those betweenpositive economics,describing "what is", andnormative economics,advocating "what ought to be";between economic theory andapplied economics;betweenrationalandbehavioural economics;and betweenmainstream economicsandheterodox economics.

Economic analysis can be applied throughout society, includingbusiness,finance,cybersecurity,health care,engineeringandgovernment.It is also applied to such diverse subjects ascrime,education,thefamily,feminism,law,philosophy,politics,religion,social institutions,war,science,andthe environment.

Definitions of economics

Main article:Definitions of economics

The earlier term for the discipline was "political economy", but since the late 19th century, it has commonly been called "economics".The term is ultimately derived fromAncient Greekοἰκονομία(oikonomia) which is a term for the "way (nomos) to run a household (oikos)", or in other words the know-how of anοἰκονομικός(oikonomikos), or "household or homestead manager". Derived terms such as "economy" can therefore often mean "frugal" or "thrifty".By extension then, "political economy" was the way to manage apolisor state.

There are a variety of moderndefinitions of economics;some reflect evolving views of the subject or different views among economists.ScottishphilosopherAdam Smith(1776) defined what was then calledpolitical economyas "an inquiry into the nature and causes of the wealth of nations", in particular as:

a branch of the science of a statesman or legislator [with the twofold objectives of providing] a plentiful revenue or subsistence for the people... [and] to supply the state or commonwealth with a revenue for the publick services.

Jean-Baptiste Say(1803), distinguishing the subject matter from itspublic-policyuses, defined it as the scienceofproduction, distribution, and consumption ofwealth.On thesatiricalside,Thomas Carlyle(1849) coined "the dismal science"as anepithetforclassical economics,in this context, commonly linked to the pessimistic analysis ofMalthus(1798).John Stuart Mill(1844) delimited the subject matter further:

The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.

Alfred Marshallprovided a still widely cited definition in his textbookPrinciples of Economics(1890) that extended analysis beyondwealthand from thesocietalto themicroeconomiclevel:

Economics is a study of man in the ordinary business of life. It enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man.

Lionel Robbins(1932) developed implications of what has been termed "[p]erhaps the most commonly accepted current definition of the subject":

Economics is the science which studieshuman behaviouras a relationship between ends and scarce means which have alternative uses.

Robbins described the definition as notclassificatoryin "pick[ing] out certainkindsof behaviour "but ratheranalyticalin "focus[ing] attention on a particularaspectof behaviour, the form imposed by the influence ofscarcity."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.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 afterend), 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 decidingactors(assuming they are rational) may never go to war (adecision) but rather explore other alternatives. Economics cannot be defined 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 criticised 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 andrational-choicemodellingexpanded the domainof the subject to areas previously treated in other fields.There are other criticisms as well, such as in scarcity not accounting for themacroeconomicsof high unemployment.

Gary Becker,a contributor to the expansion of economics into new areas, described the approach he favoured as "combin[ing the] assumptions of maximizing behaviour, stablepreferences,andmarket equilibrium,used relentlessly and unflinchingly. "One commentary characterises the remark as making economics an approach rather than a subject matter but with great specificity as to the "choice process and the type ofsocial interactionthat [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.

Many economists including nobel prize winnersJames M. BuchananandRonald Coasereject the method-based definition of Robbins and continue to prefer definitions like those of Say, in terms of its subject matter.Ha-Joon Changhas for example argued that the definition of Robbins would make economics very peculiar because all other sciences define themselves in terms of the area of inquiry or object of inquiry rather than the methodology. In the biology department, they do not say that all biology should be studied with DNA analysis. People study living organisms in many different ways, so some people will do DNA analysis, others might do anatomy, and still others might build game theoretic models of animal behaviour. But they are all called biology because they all study living organisms. According to Ha Joon Chang, this view that the economy can and should be studied in only one way (for example by studying only rational choices), and going even one step further and basically redefining economics as a theory of everything, is very peculiar.

History of economic thought

Main articles:History of economic thoughtandHistory of macroeconomic thought

From antiquity through the physiocrats

A 1638 painting of a French seaport during the heyday ofmercantilism

Questions regarding distribution of resources are found throughout the writings of theBoeotianpoetHesiodand several economic historians have described Hesiod himself as the "first economist".However, the wordOikos,the Greek word from which the word economy derives, was used for issues regarding how to manage a household (which was understood to be the landowner, his family, and his slaves) rather than to refer to some normative societal system of distribution of resources, which is a much more recent phenomenon.Xenophon,the author of theOeconomicus,is credited byphilologuesfor being the source of the word economy.Joseph Schumpeterdescribed 16th and 17th centuryscholasticwriters, includingTomás de Mercado,Luis de Molina,andJuan de Lugo,as "coming nearer than any other group to being the 'founders' of scientific economics" as tomonetary,interest,andvaluetheory within anatural-lawperspective.

Two groups, who later were called "mercantilists" and "physiocrats", more directly influenced the subsequent development of the subject. Both groups were associated with the rise ofeconomic nationalismandmodern capitalismin Europe.Mercantilismwas 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 protectivetariffson foreign manufactured goods and prohibit manufacturing in the colonies.

Physiocrats,a group of 18th-century French thinkers and writers, developed the idea of the economy as acircular flowof 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 oflaissez-faire,which called for minimal government intervention in the economy.

Adam Smith(1723–1790) was an early economic theorist.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.

Classical political economy

Main article:Classical economics

The publication ofAdam Smith'sThe Wealth of Nationsin 1776 is considered to be the first formalisation of economic thought.

The publication ofAdam Smith'sThe Wealth of Nationsin 1776, has been described as "the effective birth of economics as a separate discipline."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 specialisation bydivision of labour,including increasedlabour productivityandgains from trade,whether between town and country or across countries.His "theorem" that "the division of labor is limited by the extent of the market" has been described as the "core of atheory of the functions of firmandindustry"and a" fundamental principle of economic organization. "To Smith has also been ascribed "the most important substantive proposition in all of economics" and foundation ofresource-allocationtheory—that, undercompetition,resource owners (of labour, land, and capital) seek their most profitable uses, resulting in an equal rate of return for all uses inequilibrium(adjusted for apparent differences arising from such factors as training and unemployment).

In an argument that includes "one of the most famous passages in all economics,"Smith represents every individual as trying to employ any capital they might command for their own advantage, not that of the society,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.In this:

He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

TheRev.Thomas Robert Malthus(1798) used the concept ofdiminishing returnsto 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.EconomistJulian Simonhas criticised Malthus's conclusions.

While Adam Smith emphasised production and 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 also the first to state and prove the principle ofcomparative advantage,according to which each country should specialise in producing and exporting goods in that it has a lowerrelativecost of production, rather relying only on its own production.It has been termed a "fundamental analytical explanation" forgains from trade.

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.

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.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 afinal stationary state made up of a constant stock of physical wealth (capital) and a constant population size.

Marxian economics

Main article:Marxian economics

TheMarxistcritique of political economycomes from the work of German philosopherKarl Marx.

Marxist (later, Marxian) economics descends from classical economics and it derives from the work ofKarl Marx.The first volume of Marx's major work,Das Kapital,was published in 1867. Marx focused on thelabour theory of valueandtheory of surplus value.Marx wrote that they were mechanisms used by capital to exploit labour.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 workers were only paid a proportion of the value their work had created.

Marxian economics was further developed byKarl Kautsky(1854–1938)'sThe Economic Doctrines of Karl MarxandThe Class Struggle (Erfurt Program),Rudolf Hilferding's (1877–1941)Finance Capital,Vladimir Lenin(1870–1924)'sThe Development of Capitalism in RussiaandImperialism, the Highest Stage of Capitalism,andRosa Luxemburg(1871–1919)'sThe Accumulation of Capital.

Neoclassical economics

Main article:Neoclassical economics

At its inception as a social science,economicswas defined and discussed at length as the study of production, distribution, and consumption of wealth by Jean-Baptiste Say in hisTreatise on Political Economy or, The Production, Distribution, and Consumption of Wealth(1803). These three items were considered only in relation to the increase or diminution of wealth, and not in reference to their processes of execution.Say's definition has survived in part up to the present, modified 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 Robbinsnoticed that this definition no longer sufficed,because many economists were making theoretical and philosophical inroads in other areas of human activity. In hisEssay on the Nature and Significance of Economic Science,he proposed a definition of economics as a study of human behaviour, subject to and constrained by scarcity,which forces people to choose, allocate scarce resources to competing ends, and economise (seeking the greatest welfare while avoiding the wasting of scarce resources). According to Robbins: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses".Robbins' definition eventually became widely accepted by mainstream economists, and found its way into current textbooks.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.

A body of theory later termed "neoclassical economics" formed from about 1870 to 1910. The term "economics" was popularised by such neoclassical economists asAlfred MarshallandMary Paley Marshallas 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 thenatural sciences.

Neoclassical economics systematically integratedsupply and demandas joint determinants of both price and quantity in market equilibrium, influencing the allocation of output and income distribution. It rejected the classical economics'labour theory of valuein favour of amarginal utilitytheory of value on the demand side and a more comprehensive theory of costs on the supply side.In the 20th century, neoclassical theorists departed from an earlier idea that suggested measuring total utility for a society, opting instead forordinal utility,which posits behaviour-based relations across individuals.

Inmicroeconomics,neoclassical economics represents incentives and costs as playing a pervasive role in shapingdecision making.An immediate example of this is theconsumer theoryof individual demand, which isolates how prices (as costs) and income affect quantity demanded.Inmacroeconomicsit is reflected in an early and lastingneoclassical synthesiswith Keynesian macroeconomics.

Neoclassical economics is occasionally referred asorthodox economicswhether by its critics or sympathisers. Modernmainstream economicsbuilds on neoclassical economics but with many refinements that either supplement or generalise earlier analysis, such aseconometrics,game theory,analysis ofmarket failureandimperfect competition,and theneoclassical modelofeconomic growthfor analysing long-run variables affectingnational income.

Neoclassical economics studies the behaviour ofindividuals,households,andorganisations(called economic actors, players, or agents), when they manage or usescarceresources, 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 adecision(choice) is made by one or more players to attain the best possible outcome.

Keynesian economics

Main article:Keynesian economics

John Maynard Keynes,a key economics theorist

Keynesian economics derives fromJohn Maynard Keynes,in particular his bookThe General Theory of Employment, Interest and Money(1936), which ushered in contemporarymacroeconomicsas a distinct field.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.

During the following decades, many economists followed Keynes' ideas and expanded on his works.John HicksandAlvin Hansendeveloped theIS–LM modelwhich was a simple formalisation of some of Keynes' insights on the economy's short-run equilibrium.Franco ModiglianiandJames Tobindeveloped important theories ofprivate consumptionandinvestment,respectively, two major components ofaggregate demand.Lawrence Kleinbuilt the firstlarge-scale macroeconometric model,applying the Keynesian thinking systematically to theUS economy.

Post-WWII economics

Immediately after World War II, Keynesian was the dominant economic view of the United States establishment and its allies, Marxian economics was the dominant economic view of the Soviet Union nomenklatura and its allies.

Monetarism

Main article:Monetarism

Monetarism appeared in the 1950s and 1960s, its intellectual leader beingMilton Friedman.Monetarists contended that monetary policy and other monetary shocks, as represented by the growth in the money stock, was an important cause of economic fluctuations, and consequently that monetary policy was more important than fiscal policy forpurposes of stabilisation.Friedman was also skeptical about the ability of central banks to conduct a sensible active monetary policy in practice, advocating instead using simple rules such as a steady rate of money growth.

Monetarism rose to prominence in the 1970s and 1980s, when several major central banks followed a monetarist-inspired policy, but was later abandoned again because the results turned out to be unsatisfactory.

New classical economics

Main article:New classical macroeconomics

A more fundamental challenge to the prevailing Keynesian paradigm came in the 1970s fromnew classical economistslikeRobert Lucas,Thomas SargentandEdward Prescott.They introduced the notion ofrational expectationsin economics, which had profound implications for many economic discussions, among which were the so-calledLucas critiqueand the presentation ofreal business cycle models.

New Keynesians

Main article:New Keynesian economics

During the 1980s, a group of researchers appeared being calledNew Keynesian economists,including among othersGeorge Akerlof,Janet Yellen,Gregory MankiwandOlivier Blanchard.They adopted the principle of rational expectations and other monetarist or new classical ideas such as building upon models employing micro foundations and optimizing behaviour, but simultaneously emphasised the importance of variousmarket failuresfor the functioning of the economy, as had Keynes.Not least, they proposed various reasons that potentially explained the empirically observed features ofprice and wage rigidity,usually made to be endogenous features of the models, rather than simply assumed as in older Keynesian-style ones.

New neoclassical synthesis

Main article:New neoclassical synthesis

After decades of often heated discussions between Keynesians, monetarists, new classical and new Keynesian economists, a synthesis emerged by the 2000s, often given the namethenew neoclassical synthesis.It integrated the rational expectations and optimizing framework of the new classical theory with a new Keynesian role for nominal rigidities and other market imperfections likeimperfect informationin goods, labour and credit markets. The monetarist importance of monetary policy in stabilizingthe economy and in particular controlling inflation was recognised as well as the traditional Keynesian insistence that fiscal policy could also play an influential role in affectingaggregate demand.Methodologically, the synthesis led to a new class of applied models, known asdynamic stochastic general equilibriumor DSGE models, descending from real business cycles models, but extended with several new Keynesian and other features. These models proved very useful and influential in the design of modern monetary policy and are now standard workhorses in most central banks.

After the financial crisis

After the2007–2008 financial crisis,macroeconomic research has put greater emphasis on understanding and integrating the financial system into models of the general economy and shedding light on the ways in which problems in the financial sector can turn into major macroeconomic recessions. In this and other research branches, inspiration frombehavioural economicshas started playing a more important role in mainstream economic theory.Also,heterogeneityamong the economic agents, e.g. differences in income, plays an increasing role in recent economic research.

Other schools and approaches

Main article:Schools of economic thought

Other 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 theFreiburg School,theSchool of Lausanne,theStockholm schooland theChicago school of economics.During the 1970s and 1980smainstream economicswas sometimes separated into theSaltwater approachof those universities along theEasternandWesterncoasts of the US, and the Freshwater, orChicago schoolapproach.

Within macroeconomics there is, in general order of their historical appearance in the literature;classical economics,neoclassical economics,Keynesian economics,theneoclassical synthesis,monetarism,new classical economics,New Keynesian economicsand thenew neoclassical synthesis.

Beside themainstreamdevelopment of economic thought, various alternative orheterodox economic theorieshave evolved over time, positioning themselves in contrast to mainstream theory.These include:

• Austrian School,emphasizinghuman action,property rightsand the freedom to contract and transact to have a thriving and successful economy.It also emphasises that the state should play as small role as possible (if any role) in the regulation of economic activity between two transacting parties.Friedrich HayekandLudwig von Misesare the two most prominent representatives of the Austrian school.
• Post-Keynesian economicsconcentrates on macroeconomic rigidities and adjustment processes. It is generally associated with theUniversity of Cambridgeand the work ofJoan Robinson.
• Ecological economicslikeenvironmental economicsstudies the interactions between human economies and the ecosystems in which they are embedded,but in contrast to environmental economics takes an oppositional position towards general mainstream economic principles. A major difference between the two subdisciplines is their assumptions about thesubstitution possibilitiesbetween man-made andnatural capital.

Additionally, alternative developments includeMarxian economics,constitutional economics,institutional economics,evolutionary economics,dependency theory,structuralist economics,world systems theory,econophysics,econodynamics,feminist economicsandbiophysical economics.

Feminist economicsemphasises the role that gender plays in economies, challenging analyses that render gender invisible or support gender-oppressive economic systems.The goal is to create economic research and policy analysis that is inclusive and gender-aware to encourage gender equality and improve the well-being of marginalised groups.

Methodology

Theoretical research

Main articles:Microeconomics,Macroeconomics,andMathematical economics

"Economic theory" redirects here. For the publication, seeEconomic Theory(journal).

Mainstream economic theory relies upon analyticaleconomic models.When creating theories, the objective is to find assumptions which are at least as simple in information requirements, more precise in predictions, and more fruitful in generating additional research than prior theories.Whileneoclassicaleconomic theory constitutes both the dominant or orthodox theoretical as well asmethodological framework,economic theory can also take the form of otherschools of thoughtsuch as inheterodox economic theories.

Inmicroeconomics,principal concepts includesupply and demand,marginalism,rational choice theory,opportunity cost,budget constraints,utility,and thetheory of the firm.Earlymacroeconomicmodels focused on modelling the relationships between aggregate variables, but as the relationships appeared to change over time macroeconomists, includingnew Keynesians,reformulated their models withmicrofoundations,in which microeconomic concepts play a major part.

Sometimes an economic hypothesis is onlyqualitative,notquantitative.

Expositions of economic reasoning often use two-dimensional graphs to illustrate theoretical relationships. At a higher level of generality,mathematical economicsis the application ofmathematicalmethods to represent theories and analyse problems in economics.Paul Samuelson's treatiseFoundations of Economic Analysis(1947) exemplifies the method, particularly as to maximizing behavioural relations of agents reaching equilibrium. The book focused on examining the class of statements calledoperationally meaningful theoremsin economics, which aretheoremsthat can conceivably be refuted by empirical data.

Empirical research

Main articles:EconometricsandExperimental economics

Economic theories are frequently testedempirically,largely through the use ofeconometricsusingeconomic data.The controlled experiments common to thephysical sciencesare difficult and uncommon in economics,and instead broad data isobservationally studied;this type of testing is typically regarded as less rigorous than controlled experimentation, and the conclusions typically more tentative. However, the field ofexperimental economicsis growing, and increasing use is being made ofnatural experiments.

Statistical methodssuch asregression analysisare common. Practitioners use such methods to estimate the size, economic significance, andstatistical significance( "signal strength" ) of the hypothesised 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 thefalsifiablehypothesis 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.

Experimental economicshas promoted the use ofscientifically controlledexperiments.This has reduced the long-noted distinction of economics fromnatural sciencesbecause it allows direct tests of what were previously taken as axioms.In some cases these have found that the axioms are not entirely correct.

Inbehavioural economics,psychologistDaniel Kahnemanwon the Nobel Prize in economics in 2002 for his andAmos Tversky's empirical discovery of severalcognitive biasesandheuristics.Similar empirical testing occurs inneuroeconomics.Another example is the assumption of narrowly selfish preferences versus a model that tests for selfish, altruistic, and cooperative preferences.These techniques have led some to argue that economics is a "genuine science".

Microeconomics

Main articles:MicroeconomicsandMarket (economics)

Economists study trade, production, and consumption decisions, including those that occur in a traditionalmarketplace

São Paulo Stock ExchangeinBrazil,anelectronic tradingnetwork that brings together buyers and sellers through anelectronic trading platform

Microeconomics examines how entities, forming amarket structure,interact within amarketto create amarket system.These entities include private and public players with various classifications, typically operating under scarcity of tradable units andregulation.The item traded may be a tangibleproductsuch as apples or aservicesuch as repair services, legal counsel, or entertainment.

Various market structures exist. Inperfectly competitive markets,no participants are large enough to have themarket powerto 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 experienceimperfect competition.

Forms of imperfect competition includemonopoly(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), andoligopsony(in which there are few buyers of a good). Firms under imperfect competition have the potential to be "price makers", which means that they can influence the prices of their products.

Inpartial equilibriummethod of analysis, it is assumed that activity in the market being analysed does not affect other markets. This method aggregates (the sum of all activity) in only one market.General-equilibriumtheory studies various markets and their behaviour. It aggregates (the sum of all activity) acrossallmarkets. This method studies both changes in markets and their interactions leading towards equilibrium.

Production, cost, and efficiency

Main articles:Production (economics),Opportunity cost,Economic efficiency,andProduction–possibility frontier

An exampleproduction–possibility frontierwith illustrative points marked

In microeconomics,productionis the conversion ofinputsintooutputs.It is an economic process that uses inputs to create acommodityor a service forexchangeor direct use. Production is aflowand thus a rate of output per period of time. Distinctions include such production alternatives as forconsumption(food, haircuts, etc.) vs.investment goods(new tractors, buildings, roads, etc.),public goods(national defence, smallpox vaccinations, etc.) orprivate goods,and"guns" vs "butter".

Inputs used in the production process include such primaryfactors of productionaslabour services,capital(durable produced goods used in production, such as an existing factory), andland(including natural resources). Other inputs may includeintermediate goodsused in production of final goods, such as the steel in a new car.

Economic efficiencymeasures how well a system generates desired output with a given set of inputs and availabletechnology.Efficiency is improved if more output is generated without changing inputs. A widely accepted general standard isPareto efficiency,which is reached when no further change can make someone better off without making someone else worse off.

Theproduction–possibility frontier(PPF) is an expository figure for representing scarcity, cost, and efficiency. In the simplest case aneconomycan 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 showspotential total outputfor the economy, which is the maximum feasible output of one good, given a feasible output quantity of the other good.

Scarcityis represented in the figure by people being willing but unable in the aggregate to consumebeyond the PPF(such as atX) and by the negative slope of the curve.If production of one goodincreasesalong the curve, production of the other gooddecreases,aninverse relationship.This is because increasing output of one good requires transferring inputs to it from production of the other good, decreasing the latter.

Theslopeof the curve at a point on it gives thetrade-offbetween the two goods. It measures what an additional unit of one good costs in units forgone of the other good, an example of areal 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 choosingmoreof one good in the aggregate entails doing withlessof the other good. Still, in amarket economy,movement along the curve may indicate that thechoiceof the increased output is anticipated to be worth the cost to the agents.

By construction, each point on the curve showsproductive efficiencyin maximizing output for given total inputs. A pointinsidethe curve (as atA), is feasible but representsproduction inefficiency(wasteful use of inputs), in that output ofone or both goodscould increase by moving in a northeast direction to a point on the curve. Examples cited of such inefficiency include highunemploymentduring abusiness-cyclerecessionor economic organisation of a country that discourages full use of resources. Being on the curve might still not fully satisfyallocative efficiency(also calledPareto efficiency) if it does not produce a mix of goods that consumers prefer over other points.

Muchapplied economicsinpublic policyis concerned with determining how the efficiency of an economy can be improved. Recognizing the reality of scarcity and then figuring out how to organise society for the most efficient use of resources has been described as the "essence of economics", where the subject "makes its unique contribution."

Specialisation

Main articles:Division of labour,Comparative advantage,andGains from trade

A map showing the maintrade routesfor goods withinlate medieval Europe

Specialisation is considered key to economic efficiency based on theoretical andempiricalconsiderations. Different individuals or nations may have different real opportunity costs of production, say from differences instocksofhuman capitalper worker orcapital/labourratios. According to theory, this may give acomparative advantagein production of goods that make more intensive use of the relatively more abundant, thusrelativelycheaper, input.

Even if one region has anabsolute advantageas to the ratio of its outputs to inputs in every type of output, it may still specialise 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 ofscaleandagglomerationto explain specialisation in similar but differentiated product lines, to the overall benefit of respective trading parties or regions.

The general theory of specialisation applies to trade among individuals, farms, manufacturers,serviceproviders, andeconomies.Among each of these production systems, there may be a correspondingdivision of labourwith different work groups specializing, or correspondingly different types ofcapital equipmentand differentiatedlanduses.

An example that combines features above is a country that specialises 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 marketpricesof outputs and productive inputs select an allocation of factor inputs by comparative advantage, so that (relatively)low-costinputs go to producing low-cost outputs. In the process, aggregate output may increase as aby-productor bydesign.Such specialisation of production creates opportunities forgains from tradewhereby resource owners benefit fromtradein the sale of one type of output for other, more highly valued goods. A measure of gains from trade is theincreased income levelsthat trade may facilitate.

Supply and demand

Main article:Supply and demand

Thesupply and demandmodel describes how prices vary as a result of a balance between product availability and demand. The graph depicts an increase in demand from D₁to D₂and the resulting increase in price and quantity required to reach a new equilibrium point on the supply curve (S).

Prices and quantitieshave been described as the most directly observable attributes of goods produced and exchanged in amarket economy.The theory of supply and demand is an organizing principle for explaining how prices coordinate the amounts produced and consumed. Inmicroeconomics,it applies to price and output determination for a market withperfect competition,which includes the condition of no buyers or sellers large enough to have price-settingpower.

For a given market of acommodity,demandis 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 theorydescribes individual consumers asrationallychoosing the most preferred quantity of each good, given income, prices, tastes, etc. A term for this is "constrained utility maximisation" (with income andwealthas theconstraintson demand). Here,utilityrefers to the hypothesised relation of each individual consumer for ranking different commodity bundles as more or less preferred.

Thelaw of demandstates 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 thingsunchanged). As the price of a commodity falls, consumers move toward it from relatively more expensive goods (thesubstitution effect). In addition,purchasing powerfrom the price decline increases ability to buy (theincome effect). Other factors can change demand; for example an increase in income will shift the demand curve for anormal goodoutward relative to the origin, as in the figure. All determinants are predominantly taken as constant factors of demand and supply.

Supplyis 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 hypothesised to beprofit maximisers,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 equilibriumoccurs 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. Themodelof supply and demand predicts that for given supply and demand curves, price and quantity will stabilise 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.

Firms

Main articles:Theory of the firm,Industrial organisation,Business economics,andManagerial economics

People frequently do not trade directly on markets. Instead, on the supply side, they may work in and produce throughfirms.The most obvious kinds of firms arecorporations,partnershipsandtrusts.According toRonald Coase,people begin to organise their production in firms when the costs of doing business becomes lower than doing it on the market.Firms combine labour and capital, and can achieve far greatereconomies of scale(when the average cost per unit declines as more units are produced) than individual market trading.

Inperfectly competitivemarkets studied in the theory of supply and demand, there are many producers, none of which significantly influence price.Industrial organisationgeneralises 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.

Managerial economicsappliesmicroeconomicanalysis to specific decisions in business firms or other management units. It draws heavily from quantitative methods such asoperations researchand programming and from statistical methods such asregression analysisin the absence of certainty and perfect knowledge. A unifying theme is the attempt tooptimisebusiness decisions, including unit-cost minimisation and profit maximisation, given the firm's objectives and constraints imposed by technology and market conditions.

Uncertainty and game theory

Main articles:Information economics,Game theory,andFinancial economics

Uncertaintyin economics is an unknown prospect of gain or loss, whether quantifiable asriskor not. Without it, household behaviour would be unaffected by uncertain employment and income prospects,financialandcapital marketswould reduce to exchange of a singleinstrumentin each market period, and there would be nocommunicationsindustry.Given its different forms, there are various ways of representing uncertainty and modelling economic agents' responses to it.

Game theoryis a branch ofapplied mathematicsthat considersstrategic interactionsbetween agents, one kind of uncertainty. It provides a mathematicalfoundationofindustrial organisation,discussed above, to model different types of firm behaviour, for example in a 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. Inbehavioural economics,it has been used to model the strategiesagentschoose when interacting with others whose interests are at least partially adverse to their own.

In this, it generalises maximisation approaches developed to analyse market actors such as in thesupply and demandmodel and allows for incomplete information of actors. The field dates from the 1944 classicTheory of Games and Economic BehaviorbyJohn von NeumannandOskar Morgenstern.It has significant applications seemingly outside of economics in such diverse subjects as the formulation ofnuclear strategies,ethics,political science,andevolutionary biology.

Risk aversionmay stimulate activity that in well-functioning markets smooths out risk and communicates information about risk, as in markets forinsurance,commodityfutures contracts,andfinancial instruments.Financial economicsor simplyfinancedescribes the allocation of financial resources. It also analyses the pricing of financial instruments, thefinancial structureof companies, the efficiency and fragility offinancial markets,financial crises,and related government policy orregulation.

Some market organisations may give rise to inefficiencies associated with uncertainty. Based onGeorge Akerlof's "Market for Lemons"article, theparadigmexample 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.Information asymmetryarises here, if the seller has more relevant information than the buyer but no incentive to disclose it. Related problems in insurance areadverse selection,such that those at most risk are most likely to insure (say reckless drivers), andmoral hazard,such that insurance results in riskier behaviour (say more reckless driving).

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,andhealth care.Applied subjects include market and legal remedies to spread or reduce risk, such as warranties, government-mandated partial insurance,restructuringorbankruptcy law,inspection, andregulationfor quality and information disclosure.

Market failure

Main article:Market failure

See also:Government failure,Information economics,Environmental economics,Ecological economics,andAgricultural economics

Pollutioncan be a simple example of market failure; ifcosts of productionare not borne by producers but are by the environment, accident victims or others, then prices are distorted.

Anenvironmental scientistsampling water

The term "market failure"encompasses several problems which may undermine standard economic assumptions. Although economists categorise market failures differently, the following categories emerge in the main texts.

Information asymmetriesandincomplete marketsmay 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 offailure of competitionas a restraint on producers. Extremeeconomies of scaleare one possible cause.

Public goodsare 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.

Externalitiesoccur 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 subsidise or otherwise promote the purchase of goods that have positive externalities in an effort to correct the pricedistortionscaused by these 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.

In many areas, some form ofprice stickinessis 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 thebusiness cycleinmacroeconomics.Analysis often revolves around causes of such price stickiness and their implications for reaching a hypothesised long-run equilibrium. Examples of such price stickiness in particular markets include wage rates in labour markets and posted prices in marketsdeviatingfromperfect competition.

Some specialised fields of economics deal in market failure more than others. Theeconomics of the public sectoris one example. Muchenvironmental economicsconcerns externalities or "public bads".

Policyoptions include regulations that reflectcost–benefit analysisor market solutions that change incentives, such asemission feesor redefinition of property rights.

Welfare

Main article:Welfare economics

Welfare economics uses microeconomics techniques to evaluatewell-beingfromallocationofproductive factorsas to desirability andeconomic efficiencywithin aneconomy,often relative to competitivegeneral equilibrium.It analysessocialwelfare,howevermeasured,in terms of economic activities of the individuals that compose the theoretical society considered. Accordingly, individuals, with associated economic activities, are thebasic unitsfor aggregating to social welfare, whether of a group, a community, or a society, and there is no "social welfare" apart from the "welfare" associated with its individual units.

Macroeconomics

Main article:Macroeconomics

The circulation of money in an economyin a macroeconomic model. In this model, the use ofnatural resourcesand the generation ofwaste,such asgreenhouse gases,is not included.

Macroeconomics, another branch of economics, examines the economy as a whole to explain broad aggregates and their interactions "top down", that is, using a simplified form ofgeneral-equilibriumtheory.Such aggregates includenational income and output,theunemployment rate,and priceinflationand subaggregates like total consumption and investment spending and their components. It also studies effects ofmonetary policyandfiscal policy.

Since at least the 1960s, macroeconomics has been characterised by further integration as tomicro-basedmodelling of sectors, includingrationalityof players,efficient useof market information, andimperfect competition.This has addressed a long-standing concern about inconsistent developments of the same subject.

Macroeconomic analysis also considers factors affecting the long-term level andgrowthof national income. Such factors includecapital accumulation,technological changeandlabour forcegrowth.

Growth

Main article:Economic growth

Growth economicsstudies factors that explaineconomic growth– the increase in outputper capitaof a country over a long period of time. The same factors are used to explain differences in thelevelof outputper capitabetweencountries, in particular why some countries grow faster than others, and whether countriesconvergeat the same rates of growth.

Much-studied factors include the rate ofinvestment,population growth,andtechnological change.These are represented in theoretical andempiricalforms (as in theneoclassicalandendogenousgrowth models) and ingrowth accounting.

Business cycle

Main article:Business cycle

See also:Circular flow of income,Aggregate supply,Aggregate demand,andUnemployment

A basic illustration of abusiness cycle

The economics of a depression were the spur for the creation of "macroeconomics" as a separate discipline. During theGreat Depressionof the 1930s,John Maynard Keynesauthored a book entitledThe General Theory of Employment, Interest and Moneyoutlining the key theories ofKeynesian economics.Keynes contended thataggregate demandfor goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output.

He therefore advocated active policy responses by thepublic sector,includingmonetary policyactions by thecentral bankandfiscal policyactions by the government to stabilise output over thebusiness cycle. Thus, a central conclusion of Keynesian economics is that, in some situations, no strong automatic mechanism moves output and employment towardsfull employmentlevels.John Hicks'IS/LMmodel has been the most influential interpretation ofThe General Theory.

Over the years, understanding of thebusiness cyclehas branched into variousresearch programmes,mostly related to or distinct from Keynesianism. Theneoclassical synthesisrefers to the reconciliation of Keynesian economics withclassical economics,stating that Keynesianism is correct in theshort runbut qualified by classical-like considerations in the intermediate andlong run.

New classical macroeconomics,as distinct from the Keynesian view of the business cycle, positsmarket clearingwithimperfect information.It includes Friedman'spermanent income hypothesison consumption and "rational expectations"theory,led byRobert Lucas,andreal business cycle theory.

In contrast, thenew Keynesianapproach retains the rational expectations assumption, however it assumes a variety ofmarket failures.In particular, New Keynesians assume prices and wages are "sticky",which means they do not adjust instantaneously to changes in economic conditions.

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.

Unemployment

Main article:Unemployment

The U.S.unemploymentrate from 1990 to 2022

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, ordiscouraged from seeking workby 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.

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 unemploymentcovers a variety of possible causes of unemployment including a mismatch between workers' skills and the skills required for open jobs.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.

While some types of unemployment may occur regardless of the condition of the economy, cyclical unemployment occurs when growth stagnates.Okun's lawrepresents the empirical relationship between unemployment and economic growth.The original version of Okun's law states that a 3% increase in output would lead to a 1% decrease in unemployment.

Money and monetary policy

Main article:Monetary policy

See also:Monetary economicsandHistory of money

Moneyis ameans of final paymentfor goods in mostprice systemeconomies, and is theunit of accountin 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 asocial convention,like language, useful to one largely because it is useful to others. In the words ofFrancis Amasa Walker,a well-known 19th-century economist, "Money is what money does" ( "Money isthatmoney does "in the original).

As amedium 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 withbarter(non-monetary exchange). Given a diverse array of produced goods and specialised producers, barter may entail a hard-to-locate doublecoincidence of wantsas to what is exchanged, say apples and a book. Money can reduce thetransaction costof 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.

Monetary policy is the policy that central banks conduct to accomplish their broader objectives. Most central banks in developed countries followinflation targeting,whereas the main objective for many central banks in development countries is to uphold afixed exchange rate system.The primary monetary tool is normally the adjustment of interest rates,either directly via administratively changing the central bank's own interest rates or indirectly viaopen market operations.Via themonetary transmission mechanism,interest rate changes affectinvestment,consumptionandnet export,and henceaggregate demand,outputand employment, and ultimately the development of wages and inflation.

Fiscal policy

Main articles:Fiscal policy,Government spending,andTax

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 anoutput gapwhere 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 havemultiplier effectswhere 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 bycrowding 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 ofRicardian 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.

Inequality

Main article:Economic inequality

Economic inequality includesincome inequality,measured using thedistribution of income(the amount of money people receive), andwealth inequalitymeasured using thedistribution of wealth(the amount of wealth people own), and other measures such as consumption, land ownership, andhuman capital.Inequality exists at different extents between countries or states, groups of people, and individuals.There aremany methodsfor measuring inequality,theGini coefficientbeing widely used for income differences among individuals. An example measure of inequality between countries is theInequality-adjusted Human Development Index,a composite index that takes inequality into account.Important concepts of equality includeequity,equality of outcome,andequality of opportunity.

Research has linked economic inequality to political and social instability, includingrevolution,democratic breakdown and civil conflict.Research suggests that greater inequality hinders economic growth and macroeconomic stability, and that land andhuman capitalinequality reduce growth more than inequality of income.Inequality is at the centre stage ofeconomic policydebate across the globe, as government tax and spending policies have significant effects on income distribution.In advanced economies, taxes and transfers decrease income inequality by one-third, with most of this being achieved via public social spending (such as pensions and family benefits.)

Other branches of economics

Public economics

Main article:Public economics

Public economics is the field of economics that deals with economic activities of apublic sector,usually government. The subject addresses such matters astax incidence(who really pays a particular tax), cost–benefit analysis of government programmes, effects oneconomic efficiencyandincome distributionof different kinds of spending and taxes, and fiscal politics. The latter, an aspect ofpublic choice theory,models public-sector behaviour analogously to microeconomics, involving interactions of self-interested voters, politicians, and bureaucrats.

Much of economics ispositive,seeking to describe and predict economic phenomena.Normative economicsseeks to identify what economies ought to be like.

Welfare economics is a normative branch of economics that usesmicroeconomictechniques to simultaneously determine theallocative efficiencywithin an economy and the incomedistributionassociated with it. It attempts to measuresocial welfareby examining the economic activities of the individuals that comprise society.

International economics

Main article:International economics

List of countries bygross domestic product(PPP) per capita in April 2022

International trade studies determinants of goods-and-services flows across international boundaries. It also concerns the size and distribution ofgains from trade.Policy applications include estimating the effects of changingtariffrates and trade quotas.International financeis a macroeconomic field which examines the flow of capital across international borders, and the effects of these movements onexchange rates.Increased trade in goods, services and capital between countries is a major effect of contemporaryglobalisation.

Labour economics

Main article:Labour economics

Labour economics seeks to understand the functioning and dynamics of themarketsforwage labour.Labour marketsfunction through the interaction of workers and employers. Labour economics looks at the suppliers of labour services (workers), the demands of labour services (employers), and attempts to understand the resulting pattern of wages, employment, and income. In economics,labouris a measure of the work done by human beings. It is conventionally contrasted with such otherfactors of productionaslandandcapital.There are theories which have developed a concept calledhuman capital(referring to the skills that workers possess, not necessarily their actual work), although there are also counter posing macro-economic system theories that think human capital is a contradiction in terms.

Development economics

Main article:Development economics

Development economics examines economic aspects of theeconomic developmentprocess in relativelylow-income countriesfocusing onstructural change,poverty,andeconomic growth.Approaches in development economics frequently incorporate social and political factors.

Related subjects

Main articles:Law and economics,Natural resource economics,Philosophy and economics,andPolitical economy

Economics is onesocial scienceamong several and has fields bordering on other areas, includingeconomic geography,economic history,public choice,energy economics,cultural economics,family economicsandinstitutional 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 areeconomically efficient,and to predict what the legal rules will be.A seminal article byRonald Coasepublished in 1961 suggested that well-defined property rights could overcome the problems ofexternalities.

Political economyis the interdisciplinary study that combines economics, law, andpolitical sciencein 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-seekingbehaviour, andexternalitiesshould impact government policy.Historianshave employedpolitical economyto explore the ways in the past that persons and groups with common economic interests have used politics to effect changes beneficial to their interests.

Energy economicsis a broadscientificsubject area which includes topics related toenergy supplyandenergy demand.Georgescu-Roegenreintroduced the concept ofentropyin relation to economics and energy fromthermodynamics,as distinguished from what he viewed as the mechanistic foundation of neoclassical economics drawn from Newtonian physics. His work contributed significantly tothermoeconomicsand toecological economics.He also did foundational work which later developed intoevolutionary economics.

Thesociologicalsubfield ofeconomic sociologyarose, primarily through the work ofÉmile Durkheim,Max WeberandGeorg Simmel,as an approach to analysing the effects of economic phenomena in relation to the overarching social paradigm (i.e.modernity).Classic works includeMax Weber'sThe Protestant Ethic and the Spirit of Capitalism(1905) andGeorg Simmel'sThe Philosophy of Money(1900). More recently, the works ofJames S. Coleman,Mark Granovetter,Peter HedstromandRichard Swedberghave been influential in this field.

Gary Beckerin 1974 presented an economic theory of social interactions, whose applications included thefamily,charity,merit goodsand multiperson interactions, and envy and hatred. He andKevin Murphyauthored a book in 2001 that analysed market behaviour in a social environment.

Profession

Main article:Economist

The professionalisation of economics, reflected in the growth of graduate programmes on the subject, has been described as "the main change in economics since around 1900".Most majoruniversitiesand many colleges have a major, school, or department in whichacademic degreesare awarded in the subject, whether in theliberal arts,business, or for professional study. SeeBachelor of EconomicsandMaster of Economics.

In the private sector, professional economists are employed as consultants and in industry, includingbankingandfinance.Economists also work for various government departments and agencies, for example, the nationaltreasury,central bankorNational Bureau of Statistics.SeeEconomic analyst.

There are dozens of prizes awarded to economists each year for outstanding intellectual contributions to the field, the most prominent of which is theNobel Memorial Prize in Economic Sciences,though it is not aNobel Prize.

Contemporary economics uses mathematics. Economists draw on the tools ofcalculus,linear algebra,statistics,game theory,andcomputer science.Professional economists are expected to be familiar with these tools, while a minority specialise in econometrics and mathematical methods.

Women in economics

Harriet Martineau(1802–1876) was a widely-read populariser of classical economic thought.Mary Paley Marshall(1850–1944), the first women lecturer at a British economics faculty, wroteThe Economics of Industrywith her husbandAlfred Marshall.Joan Robinson(1903–1983) was an importantpost-Keynesianeconomist. The economic historianAnna Schwartz(1915–2012) coauthoredA Monetary History of the United States, 1867–1960withMilton Friedman.Three women have received theNobel Prize in Economics:Elinor Ostrom(2009),Esther Duflo(2019) andClaudia Goldin(2023). Five have received theJohn Bates Clark Medal:Susan Athey(2007), Esther Duflo (2010),Amy Finkelstein(2012),Emi Nakamura(2019) andMelissa Dell(2020).

Women's authorship share in prominent economic journals reduced from 1940 to the 1970s, but has subsequently risen, with different patterns of gendered coauthorship.Women remain globally under-represented in the profession (19% of authors in theRePEcdatabase in 2018), with national variation.

See also

• Critical juncture theory
• Economic democracy
• Economic ideology
• Economic union
• Economics terminology that differs from common usage
• Free trade
• Glossary of economics
• Happiness economics
• Humanistic economics
• Index of economics articles
• List of academic fields § Economics
• List of economics awards
• List of economics films
• Outline of economics
• Socioeconomics
• Solidarity economy

References

Sources

• Hoover, Kevin D.; Siegler, Mark V. (20 March 2008). "Sound and Fury: McCloskey and Significance Testing in Economics".Journal of Economic Methodology.15(1): 1–37.CiteSeerX10.1.1.533.7658.doi:10.1080/13501780801913298.S2CID216137286.
• Samuelson, Paul A;Nordhaus, William D.(2010).Economics.Boston: Irwin McGraw-Hill.ISBN978-0073511290.OCLC751033918.

Further reading

• Anderson, David A. (2019).Survey of Economics.New York: Worth.ISBN978-1-4292-5956-9.
• Blanchard, Olivier;Amighini, Alessia;Giavazzi, Francesco(2017).Macroeconomics: a European perspective(3rd ed.). Pearson.ISBN978-1-292-08567-8.
• Blaug, Mark(1985).Economic Theory in Retrospect(4th ed.). Cambridge: Cambridge University Press.ISBN978-0521316446.
• McCann, Charles Robert Jr. (2003).The Elgar Dictionary of Economic Quotations.Edward Elgar.ISBN978-1840648201.
• Economicspublic domain audiobook atLibriVox

External links

General information

• EconomicsatCurlie
• Economic journals on the web.Archived10 July 2013 at theWayback Machine
• EconomicsArchived25 June 2022 at theWayback MachineatEncyclopædia Britannica
• Economics A–Z.Archived14 February 2022 at theWayback MachineDefinitions fromThe Economist.
• Economics OnlineArchived28 October 2021 at theWayback Machine(UK-based), withdrop-down menusat top, incl. Definitions.
• Intute: Economics:Internet directoryof UK universities.
• Research Papers in Economics (RePEc)Archived16 August 2000 at theWayback Machine
• Resources For EconomistsArchived11 May 2013 at theWayback Machine:American Economic Association-sponsored guide to 2,000+ Internet resources from "Data" to "Neat Stuff", updated quarterly.

Institutions and organizations

• Economics Departments, Institutes and Research Centers in the WorldArchived30 April 2013 at theWayback Machine
• Organization For Co-operation and Economic Development (OECD) Statistics
• United Nations Statistics DivisionArchived24 January 2002 at theWayback Machine
• World Bank DataArchived27 July 2019 at theWayback Machine
• American Economic AssociationArchived20 January 2021 at theWayback Machine

Study resources

• Anderson, David; Ray, Margaret (2019).Krugman's Economics for the AP Course(3rd ed.). New York: BFW.ISBN978-1-319-11327-8.Archivedfrom the original on 8 March 2021.Retrieved2 March2021.
• McConnell, Campbell R.; et al. (2009).Economics. Principles, Problems and Policies(PDF)(18th ed.). New York: McGraw-Hill.ISBN978-0-07-337569-4.Archived fromthe original(PDF contains full textbook)on 6 October 2016.
• Economics at AboutArchived2 June 2007 at theWayback Machine
• Economics textbooksonWikibooks
• MERLOT Learning Materials: EconomicsArchived14 June 2013 at theWayback Machine:US-based database of learning materials
• Online Learning and Teaching MaterialsArchived9 May 2013 at theWayback MachineUK Economics Network's database of text, slides, glossaries and other resources